Journal
JOURNAL OF BANKING & FINANCE
Volume 31, Issue 6, Pages 1863-1886Publisher
ELSEVIER
DOI: 10.1016/j.jbankfin.2006.12.005
Keywords
commodity futures; momentum; backwardation; contango; diversification
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The article tests for the presence of short-term continuation and long-term reversal in commodity futures prices. While contrarian strategies do not work, the article identifies 13 profitable momentum strategies that generate 9.38% average return a year. A closer analysis of the constituents of the long-(s)hort portfolios reveals that the momentum strategies buy backwardated contracts and sell contangoed contracts. The correlation between the momentum returns and the returns of traditional asset classes is also found to be low, making the commodity-based relative-strength portfolios excellent candidates for inclusion in well-diversified portfolios. (c) 2007 Elsevier B.V. All rights reserved.
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