Exploiting the dynamics of commodity futures curves

Robert Bianchi, John Hua Fan, Joelle Miffre and Tingxi Zhang

Papers from arXiv.org

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.

Date: 2023-08
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Citations: View citations in EconPapers (1)

Published in Journal of Banking and Finance, 2023, 154 (106965)

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http://arxiv.org/pdf/2308.00383 Latest version (application/pdf)

Related works:
Working Paper: Exploiting the dynamics of commodity futures curves (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2308.00383

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