Long-run reversal in commodity returns: Insights from seven centuries of evidence

Adam Zaremba (), Robert J. Bianchi and Mateusz Mikutowski

Journal of Banking & Finance, 2021, vol. 133, issue C

Abstract: We perform the longest study of long-run reversal in commodity returns. Using a unique dataset of 52 agricultural, industrial, and energy commodities, we examine the price behavior for the years 1265 to 2017. The findings reveal a strong and robust long-run reversal effect. The returns of the past one to three years negatively predict subsequent performance in the cross-section of returns. The effect is robust to extensive subsample and subperiod analysis, and not driven by statistical biases, extreme events, or macroeconomic risks. Our findings support the explanation that the long-term reversal originates from supply and demand adjustments following price changes. Finally, the phenomenon is elevated in more volatile commodities and in periods of high return dispersion.

Keywords: Long-run reversal; Commodity markets; Early commodity prices; Long-term historical returns; Mean reversion; Trading strategies (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G14 Q02 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:133:y:2021:i:c:s0378426621001977

DOI: 10.1016/j.jbankfin.2021.106238

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