Commodity Strategies Based on Momentum, Term Structure, and Idiosyncratic Volatility

Ana-Maria Fuertes, Joëlle Miffre and Adrian Fernandez‐Perez

Journal of Futures Markets, 2015, vol. 35, issue 3, 274-297

Abstract: This article demonstrates that momentum, term structure, and idiosyncratic volatility signals in commodity futures markets are not overlapping, which inspires a novel triple‐screen strategy. We show that simultaneously buying contracts with high past performance, high roll‐yields, and low idiosyncratic volatility, and shorting contracts with poor past performance, low roll‐yields, and high idiosyncratic volatility yields a Sharpe ratio over the 1985 to 2011 period that is five times that of the S&P‐GSCI. The triple‐screen strategy dominates the double‐screen and individual strategies and this outcome cannot be attributed to overreaction, liquidity risk, transaction costs, or the financialization of commodity futures markets. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:274–297, 2015

Date: 2015
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