Journal of Banking & Finance Vol. 71 2016
The predictive performance of commodity futures risk factors
Abstract
This paper investigates the time-series predictability of commodity futures excess returns from factor models that exploit two risk factors – the equally weighted average excess return on long positions in a universe of futures contracts and the return difference between the high- and low-basis portfolios. Adopting a standard set of statistical evaluation metrics, we find weak evidence that the factor models provide out-of-sample forecasts of monthly excess returns significantly better than the benchmark of random walk with drift model. We also show, in a dynamic asset allocation environment, that the information contained in the commodity-based risk factors does not generate systematic economic value to risk-averse investors pursuing a commodity stand-alone strategy or a diversification strategy.
- DOI
- 10.1016/j.jbankfin.2016.06.011
- Volume
- 71
- Pages
- 20-36
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib