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
Date Written: August 31, 2016
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: Suggested Citation