Managing volatility in commodity momentum

Qi Xu and Ying Wang

Journal of Futures Markets, 2021, vol. 41, issue 5, 758-782

Abstract: We empirically investigate the effect of managing volatility in commodity momentum. Using Chinese commodity futures data, we show that managing volatility significantly improves the performance of commodity momentum. Including the new strategy significantly enhances asset allocation performance. Then, we explore several potential explanations for the profitability of the new strategy. Commodity‐specific factors, business cycle risk, financial market conditions, investor sentiments, transaction costs, leverage constraints, and data‐snooping bias do not fully account for this profitability. The profitability is in line with the predictability of momentum‐specific risk rather than aggregate market risk. Comprehensive robustness checks support our main findings.

Date: 2021
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https://doi.org/10.1002/fut.22195

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