A trend factor in commodity futures markets: Any economic gains from using information over investment horizons?

Yufeng Han and Lingfei Kong

Journal of Futures Markets, 2022, vol. 42, issue 5, 803-822

Abstract: This paper identifies a trend factor that exploits the short‐, intermediate‐, and long‐run moving averages of settlement prices in commodity futures markets. The trend factor generates statistically and economically large returns during the post‐financialization period 2004–2020. It outperforms the well‐known momentum factor by more than nine times the Sharpe ratio and has less downside risk. The trend factor cannot be explained by the existing factor models and is priced cross‐sectionally. Finally, we find that the trend factor is correlated with funding liquidity measured by the TED spread. Overall, the results indicate that there are significant economic gains from using the information on historical prices in commodity futures markets.

Date: 2022
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