Idiosyncratic Momentum in Commodity Futures

24 Pages Posted: 13 Sep 2017

See all articles by Iuliia Shpak

Iuliia Shpak

Sarasin & Partners LLP

Ben Human

Sarasin & Partners

Andrea Nardon

Sarasin & Partners LLP

Date Written: September 11, 2017

Abstract

This paper provides novel findings on idiosyncratic momentum in commodity futures. Momentum strategy that forms portfolios on the basis of commodity-specific returns delivers compelling investment returns which are substantially more robust and superior to total return momentum on an absolute and risk-adjusted basis. Furthermore, idiosyncratic return momentum is materially more persistent than total return momentum in that it delivers statistically significant positive returns over longer term horizons including ranking periods of up to 24 months. A set of commodity specific and equity markets inspired factors are examined. Notably, the results corroborate that hedging pressure and term structure are sources of risk premium in commodity futures. The analysis in this chapter expose that momentum in commodity futures is fundamentally different to the momentum effect in equity markets. Specifically, momentum in commodity futures is entirely attributed to the momentum effect in long-only portfolios whilst none of the short-only strategies’ returns are either profitable or statistically significant. Lastly, the two types of long-only momentum significantly outperform a passive investing into a broad market index such as S&P GSCI.

Keywords: momentum, risk premium, idiosyncratic return, commodity futures, equity markets, factor investing

Suggested Citation

Shpak, Iuliia and Human, Ben and Nardon, Andrea, Idiosyncratic Momentum in Commodity Futures (September 11, 2017). Available at SSRN: https://ssrn.com/abstract=3035397 or http://dx.doi.org/10.2139/ssrn.3035397

Iuliia Shpak (Contact Author)

Sarasin & Partners LLP ( email )

Juxon House
100 St Paul's Churchyard
London, London EC4M 8BU
United Kingdom

Ben Human

Sarasin & Partners ( email )

Andrea Nardon

Sarasin & Partners LLP ( email )

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