Factor Based Commodity Investing
95 Pages Posted: 2 Jul 2018 Last revised: 16 Apr 2020
Date Written: March 2020
Abstract
A multi-factor commodity portfolio combining the momentum, basis, basis-momentum, hedging pressure and value commodity factor portfolios outperforms significantly, economically and statistically, widely used commodity benchmarks. We find evidence that a variance timing strategy applied to commodity factor portfolios generates timing gains for the commodity momentum factor but not the other commodity factors. Dynamic commodities strategies based on commodity factor return prediction models provide little value added.
Keywords: Commodities, Factor Premia, Momentum, Basis, Basis-Momentum, Variance Timing, Commodity Return Predictability
JEL Classification: G11, G12
Suggested Citation: Suggested Citation