Memory-enhanced momentum in commodity futures markets

Julia S. Mehlitz and Benjamin R. Auer

The European Journal of Finance, 2024, vol. 30, issue 8, 773-802

Abstract: Motivated by the deteriorating performance of traditional cross-sectional momentum strategies in commodity futures markets, we propose to resurrect momentum by incorporating autocorrelation information into the asset selection process. Put differently, we introduce measures of short and long memory (variance ratios and Hurst coefficients, respectively) telling us whether past winners and losers are likely to persist or not. Our empirical findings suggest that a memory-enhanced momentum strategy based on variance ratios significantly outperforms traditional momentum in terms of reward and risk, effectively prevents momentum crashes and is not bound to the movement of the overall commodity market. The strategy returns cannot be explained by typical factor portfolios and macroeconomic variables. They are also robust to alternative data sets, transaction costs and data snooping. In comparison, Hurst coefficients carry less investment-relevant information and cannot outperform variance ratios in terms of risk premia and investment alpha.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/1351847X.2023.2220118 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:30:y:2024:i:8:p:773-802

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

DOI: 10.1080/1351847X.2023.2220118

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().