Trend Following, Risk Parity and Momentum in Commodity Futures
AbstractWe show that combining momentum and trend following strategies for individual commodity futures can lead to portfolios which offer attractive risk adjusted returns which are superior to simple momentum strategies; when we expose these returns to a wide array of sources of systematic risk we find that robust alpha survives. Experimenting with risk parity portfolio weightings has limited impact on our results though in particular is beneficial to long-short strategies; the marginal impact of applying trend following methods far outweighs momentum and risk parity adjustments in terms of risk-adjusted returns and limiting downside risk.Overall this leads to an attractive strategy for investing in commodity futures and emphasises the importance of trend following as an investment strategy in the commodity futures context.
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Bibliographic InfoPaper provided by Department of Economics, University of York in its series Discussion Papers with number 12/28.
Date of creation: Oct 2012
Date of revision:
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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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trend following; momentum; risk parity; equally-weighted; portfolios; commodity futures.;
Other versions of this item:
- Clare, Andrew & Seaton, James & Smith, Peter N. & Thomas, Stephen, 2014. "Trend following, risk parity and momentum in commodity futures," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 1-12.
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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