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Do momentum and reversal strategies work in commodity futures? A comprehensive study

Hanxiong Zhang and Andrew Urquhart

Review of Behavioral Finance, 2020, vol. 12, issue 4, 375-409

Abstract: Purpose - Motivated by the debate on the patterns and sources of commodity futures returns, this paper investigates the performance of three investment trading strategies, namely, the momentum strategy of Jegadeesh and Titman (1993), the 52-week high momentum strategy of George and Hwang (2004) and the pairs trading strategy of Gatev Design/methodology/approach - The three strategies are those given by Jegadeesh and Titman (1993), George and Hwang (2004) and Gatev Findings - The authors find that there is no significant reversal profit across 189 formation-holding windows for all the three strategies. However, there are statistical and economically significant momentum profits, and the profitability increases with the rising of formation-holding periods. Momentum returns are quite sensitive to market conditions but the crash of momentum returns is partly predictable. Return seasonality, risk and herding also provide partial explanation of the momentum profits. Originality/value - The authors are the first to compare the performances of the pairs trading strategy of Gatev

Keywords: Commodity futures; Momentum; Reversal; Formation-holding windows; Herding; G11; G12; G13; G14 (search for similar items in EconPapers)
Date: 2020
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