Long-Run Reversal in Commodity Returns: Insights from Seven Centuries of Evidence

59 Pages Posted: 24 Jan 2019 Last revised: 26 Jun 2020

See all articles by Adam Zaremba

Adam Zaremba

Poznań University of Economics and Business; Montpellier Business School

Robert J. Bianchi

Griffith University

Mateusz Mikutowski

Poznan University of Economics and Business

Date Written: June 25, 2020

Abstract

We perform the longest study of long-run reversal in commodity returns. Using a unique dataset of prices of 52 agricultural, industrial, and energy commodities, we examine the price behavior for the years 1265 to 2017. The findings reveal a strong and robust long-run reversal effect. The returns of the past one to three years negatively predict subsequent performance in the cross-section of returns. The effect is robust to extensive subsample and subperiod analysis, and not driven by statistical biases, extreme events, or macroeconomic risks. Our findings support the explanation that the long-term reversal originates from supply and demand adjustments following price changes. Finally, the phenomenon is elevated in more volatile commodities and in periods of high return dispersion.

Keywords: long-run reversal, commodity markets, early commodity prices, long-term historical returns, mean reversion, trading strategies

JEL Classification: G10, G11, G12, G14, Q02

Suggested Citation

Zaremba, Adam and Bianchi, Robert J. and Mikutowski, Mateusz, Long-Run Reversal in Commodity Returns: Insights from Seven Centuries of Evidence (June 25, 2020). Available at SSRN: https://ssrn.com/abstract=3314834 or http://dx.doi.org/10.2139/ssrn.3314834

Adam Zaremba (Contact Author)

Poznań University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875
Poland

HOME PAGE: http://adamzaremba.pl

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, Occitanie 34000
France

Robert J. Bianchi

Griffith University ( email )

170 Kessels Road
Nathan, Queensland QLD 4111
Australia

Mateusz Mikutowski

Poznan University of Economics and Business ( email )

al. Niepodległości 10
Poznań, Poznań 61-875
Poland

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