Commodity Futures Strategies Over the Very Long Run

Do momentum (nearest contract 12-month excess return), value (spot price change from one year ago to five years ago) and basis (12-month average ratio of nearest to next-nearest contract prices) commodity futures premiums hold up over the very long run? In their February 2019 paper entitled “Two Centuries of Commodity Futures Premia: Momentum, Value and Basis”, Christopher Geczy and Mikhail Samonov measure momentum, value and basis premiums with a 141-year sample of commodity futures contract prices, focusing on a previously untested old subsample. Specifically, they each month for each premium categorize each contract series as high, middle or low. They then measure gross performances of long-short (equally weighted high minus low) and long-only (equally weighted high) portfolios for each premium. They further assess diversification benefits by comparing a stocks-bonds portfolio with stocks-bonds-commodity futures portfolios. Using 25,595 nearest contract month returns (averaging 15.2 commodities per month for the full sample, but only 7.1 per month for the old untested subsample through 1959), U.S. stock and bond market returns and U.S. Treasury bill (T-bill) yield as the risk-free rate during 1877 through 2017, they find that:

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