Idiosyncratic Skewness of Commodity Futures Returns

36 Pages Posted: 7 Jun 2019 Last revised: 28 May 2020

See all articles by Yufeng Han

Yufeng Han

University of North Carolina (UNC) at Charlotte - Finance

Xuan Mo

Central University of Finance and Economics

Zhi Su

Central University of Finance and Economics (CUFE)

Yifeng Zhu

School of Finance, Central University of Finance and Economics

Date Written: May 28, 2020

Abstract

We examine the ability of idiosyncratic skewness to explain the cross section of commodity futures returns at both the characteristic and factor levels. We find that idiosyncratic skewness negatively and significantly predicts cross-sectional commodity futures returns, and largely accounts for the skewness effect documented in previous studies. Furthermore, we find that a long/short trading strategy based on the idiosyncratic skewness generates significant abnormal returns, which cannot be explained by the traditional risk factors in commodity futures markets and persists up to 12 months. Moreover, idiosyncratic skewness appears to be a priced risk factor in commodity futures markets. Finally, we find that a novel asymmetry measure, IE, is better at capturing the effect of idiosyncratic skewness than the traditional measure.

Keywords: Idiosyncratic skewness; Cross section; Commodity futures returns; IE

JEL Classification: G11; G12; G13

Suggested Citation

Han, Yufeng and Mo, Xuan and Su, Zhi and Zhu, Yifeng, Idiosyncratic Skewness of Commodity Futures Returns (May 28, 2020). Available at SSRN: https://ssrn.com/abstract=3391784 or http://dx.doi.org/10.2139/ssrn.3391784

Yufeng Han (Contact Author)

University of North Carolina (UNC) at Charlotte - Finance ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

Xuan Mo

Central University of Finance and Economics ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Zhi Su

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Yifeng Zhu

School of Finance, Central University of Finance and Economics ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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