The predictive performance of commodity futures risk factors

Ahmed, Shamim and Tsvetanov, Daniel (2016) The predictive performance of commodity futures risk factors. Journal of Banking & Finance, 71. pp. 20-36. ISSN 0378-4266

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Abstract

This paper investigates the time-series predictability of commodity futures excess returns from factor models that exploit two risk factors – the equally weighted average excess return on long positions in a universe of futures contracts and the return difference between the high- and low-basis portfolios. Adopting a standard set of statistical evaluation metrics, we find weak evidence that the factor models provide out-of-sample forecasts of monthly excess returns significantly better than the benchmark of random walk with drift model. We also show, in a dynamic asset allocation environment, that the information contained in the commodity-based risk factors does not generate systematic economic value to risk-averse investors pursuing a commodity stand-alone strategy or a diversification strategy.

Item Type: Article
Faculty \ School: Faculty of Social Sciences > Norwich Business School
Related URLs:
Depositing User: Pure Connector
Date Deposited: 09 Feb 2018 15:30
Last Modified: 18 Mar 2020 00:56
URI: https://ueaeprints.uea.ac.uk/id/eprint/66256
DOI: 10.1016/j.jbankfin.2016.06.011

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