Exploiting the dynamics of commodity futures curves

Robert J. Bianchi, John Hua Fan, Joëlle Miffre and Tingxi Zhang

Journal of Banking & Finance, 2023, vol. 154, issue C

Abstract: The Nelson-Siegel framework is employed to model the term structure of commodity futures prices. Exploiting the information embedded in the level, slope and curvature parameters, we develop novel investment strategies that assume short-term continuation of recent parallel, slope or butterfly movements of futures curves. Systematic strategies based on the change in the slope generate significant profits that are unrelated to previously documented risk factors and can survive reasonable transaction costs. Further analysis demonstrates that the profitability of the slope strategy increases with investor sentiment and is in part a compensation for the drawdowns incurred during economic slowdowns. The profitability can also be magnified through timing and persists under alternative specifications of the Nelson-Siegel model.

Keywords: Commodity futures; Nelson-Siegel model; Slope strategy; Spread (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:154:y:2023:i:c:s0378426623001632

DOI: 10.1016/j.jbankfin.2023.106965

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