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The predictive performance of commodity futures risk factors

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posted on 2023-06-09, 04:04 authored by Shamim Ahmed, Daniel Tsvetanov
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.

History

Publication status

  • Published

File Version

  • Accepted version

Journal

Journal of Banking and Finance

ISSN

0378-4266

Publisher

Elsevier

Volume

71

Page range

20-36

Department affiliated with

  • Business and Management Publications

Research groups affiliated with

  • Business and Finance Research Group Publications

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2016-11-16

First Open Access (FOA) Date

2018-01-10

First Compliant Deposit (FCD) Date

2016-11-16

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