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Active trading strategies based on momentum and term structure signals in commodity futures market: evidence from India

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  • Ritika Jaiswal

Abstract

This research designs an active double-sort strategy which integrates both momentum and term structure signals present in the commodity futures market. By using a sample of highly traded commodity future contracts of the Indian commodity market from 2006 to 2016, this study confirms the exceptionally high abnormal profitability of the double-sort strategy. The abnormal returns of the double-sort portfolios are robust to transaction costs incurred for designing these active strategies. The application of a conditional multi-factor model and sub-sample analysis suggests that the return profile of these strategies is basically time-varying. Moreover, the low and insignificant correlation of double-sort portfolios with stocks and bonds confirms that relative strength portfolios of commodity futures can be effectively used to create a well-diversified portfolio.

Suggested Citation

  • Ritika Jaiswal, 2021. "Active trading strategies based on momentum and term structure signals in commodity futures market: evidence from India," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 11(1), pages 131-150.
    • Handle: RePEc:ids:afasfa:v:11:y:2021:i:1:p:131-150
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