Momentum in Commodity Futures and Reversion in Spot
September 20, 2016 - Commodity Futures, Momentum Investing
Do spot price trends drive commodity futures momentum strategies? In their August 2016 paper entitled “Momentum and Mean-Reversion in Commodity Spot and Futures Markets”, Denis Chaves and Vivek Viswanathan investigate the reasons for the success of cross-sectional (relative) momentum strategies and failure of cross-sectional mean reversion strategies in the commodity futures markets. They specify commodity valuation as the ratio of current price to average price ratio over the past 120 months (P/A). They specify commodity price trend as cumulative return over measurement intervals ranging from the last month to the last 66 months. Using two independent sets of 25 (with liquid futures) and 21 (without liquid futures) commodity spot price series as available since 1946 and one set of 27 commodity futures price series as available since 1965, all through 2014, they find that: Keep Reading