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Commodity futures and a wavelet-based risk assessment

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  • Berger, Theo
  • Czudaj, Robert L.

Abstract

This paper provides an in-depth assessment of commodity futures on applied risk measurement. We provide a thorough empirical study on deconstructed commodity futures returns and present a novel wavelet-based portfolio strategy. First, we examine the dependence structure between commodity futures and show that it is described by different dependence regimes in the short-run, medium-run and long-run. Then, the out-of-sample portfolio study unveils that daily portfolio management is mostly driven by medium-run and long-run information. Furthermore, we also find that information inherent in long-run trends outperform the information included in short-run trends and this underlines the usefulness of the wavelet approach for portfolio management.

Suggested Citation

  • Berger, Theo & Czudaj, Robert L., 2020. "Commodity futures and a wavelet-based risk assessment," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 554(C).
    • Handle: RePEc:eee:phsmap:v:554:y:2020:i:c:s037843712030114x
    DOI: 10.1016/j.physa.2020.124339
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    References listed on IDEAS

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    More about this item

    Keywords

    Commodity futures; Portfolio management; Risk measurement; Minimum variance; Wavelet decomposition;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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