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Combining momentum with reversal in commodity futures

Listed author(s):
  • Bianchi, Robert J.
  • Drew, Michael E.
  • Fan, John Hua

This paper examines profitable trading strategies that jointly exploit momentum and reversal signals in commodity futures. While the single-sort momentum strategies returns 11.14% per annum, on average, a consistent reversal pattern of momentum profits is pronounced from 12 to 30months after portfolio formation. Combining the observed reversal pattern with the momentum signal, our double-sort strategy returns 20.24% per annum, which significantly outperforms single-sort strategies. The proposed strategy is robust to seasonality effects and sample adjustments in commodity futures. The profitability of the double-sort strategy cannot be explained by standard risk factors, term structure, market volatility, investor sentiment, data-mining or transaction costs, but appears to be related to global funding liquidity. As a consequence, the double-sort strategy in commodity futures may be employed as a portfolio diversification tool.

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File URL: http://www.sciencedirect.com/science/article/pii/S0378426615002009
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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 59 (2015)
Issue (Month): C ()
Pages: 423-444

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Handle: RePEc:eee:jbfina:v:59:y:2015:i:c:p:423-444
DOI: 10.1016/j.jbankfin.2015.07.006
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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