How about selling commodity futures losers?

This paper explores the benefits of extending the investment universe to commodity futures, from the perspective of momentum traders. We find that the growth‐optimal portfolio includes negative (positive) weights on commodity futures losers (stock winners). Motivated by this finding, we construct a...

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Bibliographic Details
Published in:The journal of futures markets 2019-12, Vol.39 (12), p.1489-1514
Main Authors: Kang, Jangkoo, Kwon, Kyung Yoon
Format: Article
Language:English
Subjects:
Commodities
Commodity futures
Futures
Kurtosis
market anomalies
momentum
momentum crashes
Profitability
Skewness
tail risk
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Summary:This paper explores the benefits of extending the investment universe to commodity futures, from the perspective of momentum traders. We find that the growth‐optimal portfolio includes negative (positive) weights on commodity futures losers (stock winners). Motivated by this finding, we construct a joint momentum strategy, buying stock winners and selling commodity futures losers, and show that it generates an average monthly return of up to 1.91% and provides much lower skewness (0.04) and kurtosis (1.27) than a traditional stock momentum strategy. It also greatly improves profitability, especially in unfavorable market states, and thus effectively manages tail risk.
ISSN:0270-7314
1096-9934
DOI:10.1002/fut.22051