A new strategy using term-structure dynamics of commodity futures |
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| Institution: | 1. Business School, Soongsil University 369 Sangdo-Ro, Dongjak-Gu, Seoul 156-743, Republic of Korea;2. Department of Finance, Hanyang University Business School, 222 Wangsimni-ro, Seongdong-gu, Seoul 133-791, Republic of Korea;1. Department of Banking and Financial Management, University of Piraeus, Greece;2. Manchester Business School, University of Manchester, UK;3. School of Economics and Finance, Queen Mary, University of London, UK;1. Information Systems, Supply Chain and Decisions Department, NEOMA Business School, 1, rue du Maréchal Juin, 76825 Mont Saint Aignan Cedex, France;2. Finance Department, NEOMA Business School, 1, rue du Maréchal Juin, 76825 Mont Saint Aignan Cedex, France;1. Institute of Economic Studies, Charles University, Opletalova 26, 110 00 Prague, Czech Republic;2. Institute of Information Theory and Automation, The Czech Academy of Sciences, Pod Vodarenskou Vezi 4, 182 00 Prague, Czech Republic |
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| Abstract: | The term structure of commodity futures is important information for traders and investors. Traditional term-structure strategies are static; they tend to use the slope of term structure at a given moment. Instead, our trading strategy uses the change of term structure and generates statistically significant return. It also produces significant abnormal return in excess of the traditional two factors, i.e. the returns from static-slope strategy and daily momentum. Thus, its return includes orthogonal information or excess return that standard static-slope and momentum strategies cannot explain. This suggests a novel risk factor in the asset class of commodity futures or robust trading opportunities. |
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| Keywords: | Commodity Futures Backwardation Contango Momentum Term structure dynamic-slope strategy |
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