Commodity sectors and factor investment strategies

Kei Nakagawa and Ryuta Sakemoto

International Review of Financial Analysis, 2024, vol. 95, issue PC

Abstract: Commodity sectors exhibit heterogeneous characteristics owing to their limited supply and demand. To analyze these sector heterogeneities, we construct commodity factor portfolios without using a single sector and investigate whether commodity sectors play an important role in determining the risk premiums of commodity futures. We construct an equally weighted portfolio that includes momentum, basis, basis momentum, value, and hedging pressure while excluding the precious metal sector. We find that this portfolio generates a Sharpe ratio of 1.67. This finding indicates that the special status of precious metals employed as hedging tools for other assets distorts the performance of commodity factors.

Keywords: Commodity futures; Factor investment; Sector heterogeneity (search for similar items in EconPapers)
JEL-codes: G11 G13 Q02 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:95:y:2024:i:pc:s1057521924004253

DOI: 10.1016/j.irfa.2024.103493

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