Journal of Banking & Finance Vol. 59 2015
Combining momentum with reversal in commodity futures
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.
- DOI
- 10.1016/j.jbankfin.2015.07.006
- Volume
- 59
- Pages
- 423-444
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib