Commodity strategies based on momentum, term structure, and idiosyncratic volatility

Fuertes, A., Miffre, J. & Fernandez-Perez, A. (2015). Commodity strategies based on momentum, term structure, and idiosyncratic volatility. Journal of Futures Markets, 35(3), pp. 274-297. doi: 10.1002/fut.21656

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Abstract

This article demonstrates that momentum, term structure, and idiosyncratic volatility signals in commodity futures markets are not overlapping, which inspires a novel triple-screen strategy. We show that simultaneously buying contracts with high past performance, high roll-yields, and low idiosyncratic volatility, and shorting contracts with poor past performance, low roll-yields, and high idiosyncratic volatility yields a Sharpe ratio over the 1985 to 2011 period that is five times that of the S&P-GSCI. The triple-screen strategy dominates the double-screen and individual strategies and this outcome cannot be attributed to overreaction, liquidity risk, transaction costs, or the financialization of commodity futures markets.

Item Type: Article
Additional Information: This is the accepted version of the following article: Fuertes, A.-M., Miffre, J. and Fernandez-Perez, A. (2015), Commodity Strategies Based on Momentum, Term Structure, and Idiosyncratic Volatility. J. Fut. Mark., 35: 274–297, which has been published in final form at http://dx.doi.org/10.1002/fut.21656
Uncontrolled Keywords: Commodity futures, Momentum, Term structure, Idiosyncratic volatility
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/6418

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