Long-Run Reversal in Commodity Returns: Insights from Seven Centuries of Evidence
54 Pages Posted: 24 Jan 2019
Date Written: January 13, 2019
We perform the longest study of long-run reversal in commodity returns ever conducted. Using a unique dataset of prices of 52 agricultural, industrial, and energy commodities, we examine the price behaviour 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 long-run reversal effect is present in both agricultural and non-agricultural commodity returns across all centuries and is independent of market states. The long-run reversal cannot be explained by macroeconomic risks. The phenomena 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
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