Newswire tone-overlay commodity portfolios

Adrian Fernandez-Perez, Ana-Maria Fuertes, Joëlle Miffre and Nan Zhao

Journal of Banking & Finance, 2025, vol. 178, issue C

Abstract: This paper introduces the tone-overlay framework for adjusting traditional commodity signals based on the level of salient optimism or pessimism in commodity newswires. By implementing the novel tone-overlay allocation strategy on 26 commodities using traditional allocation signals, we demonstrate that the resulting long-short portfolios yield substantial performance gains compared to the corresponding plain-vanilla traditional portfolios. Our findings suggest that newswire tone provides short-term predictive power for commodity futures returns, beyond well-known commodity characteristics. The tone-overlay portfolios harness a temporary mispricing that reflects an overreaction of commodity futures prices to commodity-specific newswire tone. The outperformance of the tone overlay strengthens with the salience of the newswire tone, consistent with theories of limited investor attention.

Keywords: Newswire tone-overlay portfolio; Textual analysis; Sentiment; Commodity futures; Tactical allocation; Mispricing; Salience (search for similar items in EconPapers)
JEL-codes: G12 G14 Q02 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:178:y:2025:i:c:s0378426625001219

DOI: 10.1016/j.jbankfin.2025.107501

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