Momentum and Mean-Reversion in Commodity Spot and Futures Markets

Journal of Commodity Markets, vol. 3, no. 1, September 2016, pp. 39-53

Posted: 2 Sep 2016 Last revised: 30 Dec 2016

See all articles by Denis B. Chaves

Denis B. Chaves

The Vanguard Group, Inc.

Vivek Viswanathan

Rayliant Global Advisors

Date Written: August 31, 2016

Abstract

We study momentum and mean-reversion strategies in commodity futures prices and their relationship to momentum and mean-reversion in commodity spot prices. We find that momentum performs well in futures markets, but not in spot markets, and that mean-reversion performs well in spot markets, but not in futures markets. A decomposition of the basis (the slope of the term-structure of futures prices) into expected risk premiums and expected changes in spot prices helps us shed some light on the different results across the futures and spot markets. Most interestingly, we find that momentum in futures prices cannot be explained by a sustained trend in spot prices.

Keywords: Commodity Futures; Basis; Momentum; Mean-Reversion; Trend-Following; Trading Strategies

JEL Classification: G11; G12; G13; G14

Suggested Citation

Chaves, Denis Biangolino and Viswanathan, Vivek, Momentum and Mean-Reversion in Commodity Spot and Futures Markets (August 31, 2016). Journal of Commodity Markets, vol. 3, no. 1, September 2016, pp. 39-53. Available at SSRN: https://ssrn.com/abstract=2833003 or http://dx.doi.org/10.2139/ssrn.2833003

Denis Biangolino Chaves (Contact Author)

The Vanguard Group, Inc. ( email )

100 Vanguard Blvd
Malvern, PA 19355
United States

Vivek Viswanathan

Rayliant Global Advisors ( email )

Hong Kong

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