REVERSAL OVERLAY FROM COMMODITY FUTURES
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Date
2021-12-21
Authors
Sotsialkhan, Dosbol
Journal Title
Journal ISSN
Volume Title
Publisher
Nazarbayev University, Graduate School of Business
Abstract
This study gets insight from a recently published article which finds out the predicting role of the “CFEAR” in the commodity futures market. It becomes interesting for me to check its robustness in a longer period. Due to the limitations of internet access prior to their sample period, this paper has examined whether a nearest proxy for the “CFEAR” can produce similar result. The proxied “Simple 5” portfolio failed to perform similarly out of sample. However, through examining various cross-sectional exploratory regressions and 576 different momentum strategies, a risky 6-Month Reversal patterns from the commodity futures returns has been identified in the training period. When this 6-Month Reversal portfolio added as an overlay to the Equal Weighted Commodity Portfolio and some conventional benchmarks in the stock market, the overlay can enhance the performance out-of-sample. Due to the limitations of data availability, other common factors such as basis, basis-momentum, relative basis, hedging pressure are not included in the study. A high Sharpe Ratio from the Reversal Portfolios indicates informationally inefficient markets. Thus, examining the economic significance of the short-term reversal strategies seems meaningful for the academia and practitioners
Description
Keywords
commodity futures, reversal, momentum, overlay portfolio, Type of access: Restricted
Citation
Sotsialkhan, D. (2021) Reversal overlay from commodity futures. Nazarbayev University, Graduate School of Business