Commodity Futures Momentum: Sources of Risk and Anomalies

44 Pages Posted: 23 Aug 2016 Last revised: 19 Feb 2020

See all articles by Robert J. Bianchi

Robert J. Bianchi

Griffith University

Michael E. Drew

Griffith University

John Hua Fan

Griffith University - Department of Accounting, Finance and Economics

Date Written: February 19, 2020

Abstract

This paper explores the source(s) of commodity futures momentum and an associated anomaly. We decompose the 12-month conventional momentum strategy into single-month momentum components. Historical information in the cross-section of returns at 10 to 11 months prior to portfolio formation explains some of the variation in commodity futures momentum. This anomaly persists after controlling for standard risk factors, commodity-specific risks, behavioral factors, transaction costs, commodity sectors or seasonality effects. The sources of risk and return in this anomaly are sufficiently different to conventional momentum. We find that limits to arbitrage and investor sentiment are significant in explaining the excess returns in commodity futures momentum and its associated anomaly. The introduction of limits to arbitrage and investor sentiment extends our understanding of commodity futures momentum.

Keywords: Momentum, Commodity Futures, Anomaly, Limits to Arbitrage, Investor Sentiment

JEL Classification: G11, G13, G14

Suggested Citation

Bianchi, Robert J. and Drew, Michael E. and Fan, John Hua, Commodity Futures Momentum: Sources of Risk and Anomalies (February 19, 2020). Available at SSRN: https://ssrn.com/abstract=2827237 or http://dx.doi.org/10.2139/ssrn.2827237

Robert J. Bianchi

Griffith University ( email )

170 Kessels Road
Nathan, Queensland QLD 4111
Australia

Michael E. Drew

Griffith University ( email )

Brisbane, Queensland 4111
Australia

John Hua Fan (Contact Author)

Griffith University - Department of Accounting, Finance and Economics ( email )

Brisbane, Queensland 4111
Australia
+61 (0)7 3735 4638 (Phone)
+61 (0)7 373 57760 (Fax)

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