Investable Commodity Premia in China
54 Pages Posted: 25 Feb 2020 Last revised: 20 May 2020
Date Written: January 26, 2020
We investigate the investability of commodity risk premia in China. Previously documented standard momentum, carry and basis-momentum factors are not investable due to the unique liquidity patterns along the futures curves in China. However, dynamic rolling and strategic portfolio weights significantly boost the investment capacity of such premia without compromising its statistical and economic significance. Meanwhile, style integration delivers enhanced performance and improved opportunity sets. Furthermore, the observed investable premia are robust to execution lags, stop-loss, illiquidity, sub-period specifications, seasonality, transaction costs and offer portfolio diversification for investors. Finally, investable commodity premia in China reveal strong predictive ability with global real economic growth.
Keywords: China, Commodity Futures, Momentum, Carry, Capacity, Investability
JEL Classification: G13, G14, G15, N25
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