The predictive performance of commodity futures risk factors
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 port...
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| Format: | Article |
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Elsevier
2016
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| Online Access: | https://eprints.nottingham.ac.uk/37591/ |
| _version_ | 1848795492528422912 |
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| author | Ahmed, Shamim Tsvetanov, Daniel |
| author_facet | Ahmed, Shamim Tsvetanov, Daniel |
| author_sort | Ahmed, Shamim |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | 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. |
| first_indexed | 2025-11-14T19:32:57Z |
| format | Article |
| id | nottingham-37591 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T19:32:57Z |
| publishDate | 2016 |
| publisher | Elsevier |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-375912020-05-04T20:00:24Z https://eprints.nottingham.ac.uk/37591/ The predictive performance of commodity futures risk factors Ahmed, Shamim Tsvetanov, Daniel 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. Elsevier 2016-10 Article PeerReviewed Ahmed, Shamim and Tsvetanov, Daniel (2016) The predictive performance of commodity futures risk factors. Journal of Banking and Finance, 71 . pp. 20-36. ISSN 1872-6372 Commodity markets; Futures pricing; Out-of-sample predictability; Economic value; Time series; Econometric models http://www.sciencedirect.com/science/article/pii/S0378426616301121 doi:10.1016/j.jbankfin.2016.06.011 doi:10.1016/j.jbankfin.2016.06.011 |
| spellingShingle | Commodity markets; Futures pricing; Out-of-sample predictability; Economic value; Time series; Econometric models Ahmed, Shamim Tsvetanov, Daniel The predictive performance of commodity futures risk factors |
| title | The predictive performance of commodity futures risk factors |
| title_full | The predictive performance of commodity futures risk factors |
| title_fullStr | The predictive performance of commodity futures risk factors |
| title_full_unstemmed | The predictive performance of commodity futures risk factors |
| title_short | The predictive performance of commodity futures risk factors |
| title_sort | predictive performance of commodity futures risk factors |
| topic | Commodity markets; Futures pricing; Out-of-sample predictability; Economic value; Time series; Econometric models |
| url | https://eprints.nottingham.ac.uk/37591/ https://eprints.nottingham.ac.uk/37591/ https://eprints.nottingham.ac.uk/37591/ |