Combining momentum with reversal in commodity futures

Robert J. Bianchi, Michael E. Drew, John Hua Fan*

*Corresponding author for this work

Research output: Contribution to journalArticle

26 Citations (Scopus)

Abstract

This paper examines profitable trading strategies that jointly exploit momentum and reversal signals in commodity futures. While the single-sort momentum strategies returns 11.14% per annum, on average, a consistent reversal pattern of momentum profits is pronounced from 12 to 30. months after portfolio formation. Combining the observed reversal pattern with the momentum signal, our double-sort strategy returns 20.24% per annum, which significantly outperforms single-sort strategies. The proposed strategy is robust to seasonality effects and sample adjustments in commodity futures. The profitability of the double-sort strategy cannot be explained by standard risk factors, term structure, market volatility, investor sentiment, data-mining or transaction costs, but appears to be related to global funding liquidity. As a consequence, the double-sort strategy in commodity futures may be employed as a portfolio diversification tool.

Original languageEnglish
Pages (from-to)423-444
Number of pages22
JournalJournal of Banking and Finance
Volume59
DOIs
Publication statusPublished - 1 Oct 2015
Externally publishedYes

Keywords

  • Commodity futures
  • Double-sort strategy
  • Funding liquidity
  • Momentum
  • Reversal
  • Seasonality

Fingerprint Dive into the research topics of 'Combining momentum with reversal in commodity futures'. Together they form a unique fingerprint.

Cite this