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The alpha momentum effect in commodity markets

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  • Zaremba, Adam
  • Mikutowski, Mateusz
  • Szczygielski, Jan Jakub
  • Karathanasopoulos, Andreas

Abstract

We are the first to document an alpha momentum effect in commodity markets. We demonstrate a strong cross-sectional relationship between future commodity returns and past alphas derived from pricing models that control for major risk factors. A strategy of going long (short) in commodities with the highest (lowest) alphas delivers economically and statistically significant payoffs and produces higher risk-adjusted returns that are approximately double the standard price momentum. Alpha momentum is not subsumed by conventional risk factors, including price momentum although price momentum is subsumed by alpha momentum. Our results are robust to numerous considerations, including alternative evaluation models, different holding periods, trading costs, subperiod analysis and alternative implementation techniques.

Suggested Citation

  • Zaremba, Adam & Mikutowski, Mateusz & Szczygielski, Jan Jakub & Karathanasopoulos, Andreas, 2021. "The alpha momentum effect in commodity markets," Energy Economics, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:eneeco:v:93:y:2021:i:c:s0140988319301902
    DOI: 10.1016/j.eneco.2019.06.006
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    More about this item

    Keywords

    Alpha momentum; Futures pricing; Commodities;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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