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Feb 18

Commodity Strategies Based on Momentum, Term Structure, and Idiosyncratic Volatility

Posted by abiao at 13:56 | Default | Comments(0) | Reads(4303)

An interesting article forthcoming at the Journal of Futures Markets by Fuertes, Miffre and Fernandez-Perez.

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.


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