Factor Momentum in Commodity Futures Markets

42 Pages Posted: 19 Jan 2024

See all articles by Yiyan Qian

Yiyan Qian

Nottingham University Business School

Xiaoquan Liu

Nottingham University Business School

Ying Jiang

The University of Nottingham Ningbo, China

Multiple version iconThere are 2 versions of this paper

Date Written: December 28, 2023

Abstract

This paper examines the factor momentum in commodity futures markets. Using data from the developed markets from 1985 to 2022, we first show that a commodity factor’s past returns positively predict its future returns. This predictability leads to sizable economic profits in a factor momentum strategy, is at its strongest over the one-month horizon, and could be explained by mispricing. Moreover, we show that the factor momentum indicates mean-variance inefficient common commodity factors, and negatively impacts the pricing efficiency of factor pricing models. We construct the time series of efficient factors, which exhibit higher Sharpe ratios and help improve the pricing performance of factor models. Our results point to the potential to time commodity factors, and highlight the importance of conditional asset pricing in commodity futures markets.

Keywords: Return autocorrelation, Mispricing, Factor enhancement, Conditional asset pricing, Mean–variance optimization

JEL Classification: G11, G12

Suggested Citation

Qian, Yiyan and Liu, Xiaoquan and Jiang, Ying, Factor Momentum in Commodity Futures Markets (December 28, 2023). Available at SSRN: https://ssrn.com/abstract=4678928 or http://dx.doi.org/10.2139/ssrn.4678928

Yiyan Qian (Contact Author)

Nottingham University Business School ( email )

Xiaoquan Liu

Nottingham University Business School ( email )

199 Taikang East Road
Yingzhou
Ningbo, Zhejiang 315100
China

Ying Jiang

The University of Nottingham Ningbo, China ( email )

199 Taikang East Road
China

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,036
Abstract Views
2,314
Rank
35,619
PlumX Metrics