The predictive performance of commodity futures risk factors

Ahmed, Shamim and Tsvetanov, Daniel (2016) The predictive performance of commodity futures risk factors. Journal of Banking & Finance, 71. pp. 20-36. ISSN 0378-4266

[img] PDF - Accepted Version
Restricted to SRO admin only until 10 January 2018.

Download (399kB)

Abstract

This paper investigates the time-series predictability of commodity futures excess returns from factor models that exploit two risk factors – the equally weighted average excess return on long positions in a universe of futures contracts and the return difference between the high- and low-basis portfolios. Adopting a standard set of statistical evaluation metrics, we find weak evidence that the factor models provide out-of-sample forecasts of monthly excess returns significantly better than the benchmark of random walk with drift model. We also show, in a dynamic asset allocation environment, that the information contained in the commodity-based risk factors does not generate systematic economic value to risk-averse investors pursuing a commodity stand-alone strategy or a diversification strategy.

Item Type: Article
Keywords: Commodity markets; Futures pricing; Out-of-sample predictability; Economic value; Time series; Econometric models
Schools and Departments: School of Business, Management and Economics > Business and Management
Research Centres and Groups: Business and Finance Research Group
Subjects: H Social Sciences > HG Finance
Depositing User: Daniel Tsvetanov
Date Deposited: 16 Nov 2016 09:21
Last Modified: 07 Mar 2017 08:17
URI: http://sro.sussex.ac.uk/id/eprint/65509

View download statistics for this item

📧 Request an update