Download this Paper Open PDF in Browser

How Do Portfolio Weighting Schemes Affect Commodity Futures Risk Premia?

30 Pages Posted: 4 Jun 2017  

Hossein Rad

University of Queensland, Business School, Students

Rand Kwong Yew Low

University of Queensland Business School

Joëlle Miffre

Audencia Nantes School of Management; Audencia Business School

Robert W. Faff

University of Queensland

Date Written: November 1, 2016

Abstract

We examine whether and to what extent successful equities investment strategies are transferrable to the commodities futures market. We investigate a total of 7 investment strategies that involve optimization and mean-variance timing techniques. To account for the unique characteristics of the commodity futures market, we propose a novel method of classification based on momentum or term structure properties in the formation of long-short portfolios in conjunction with the quantitative strategies from the equities literature. Our strategies generate significant excess returns and risk-adjusted performances as measured by the Sharpe and Sortino ratios and the maximum drawdown. We find no significant correlation between the strategies’ excess returns and common risk factors. There is no evidence that excess returns are a compensation for liquidity risk. The strategies are robust to transaction costs and choice of model parameters and exhibit stable performance across various market environments including times of financial crises.

Keywords: commodity futures, portfolio optimization, quantitative strategies, investment strategies

JEL Classification: G11, G12, G14

Suggested Citation

Rad, Hossein and Low, Rand Kwong Yew and Miffre, Joëlle and Faff, Robert W., How Do Portfolio Weighting Schemes Affect Commodity Futures Risk Premia? (November 1, 2016). Available at SSRN: https://ssrn.com/abstract=2977710

Hossein Rad (Contact Author)

University of Queensland, Business School, Students ( email )

St Lucia
Australia

Rand Kwong Yew Low

University of Queensland Business School ( email )

Building 37-411, Joyce Ackroyd
St Lucia
Brisbane, QLD 4122
Australia
+61 7 3346 8124 (Phone)
+61 7 3346 8166 (Fax)

HOME PAGE: http://www.business.uq.edu.au/staff/details/rand-low

Joelle Miffre

Audencia Nantes School of Management ( email )

8 route de la Jonelière, BP 31222
Nantes Cedex 3, Cedex 3 44312
France

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Paper statistics

Downloads
367
Rank
67,484
Abstract Views
1,041