Do momentum and reversal strategies work in commodity futures? A comprehensive study

Research output: Contribution to journalArticlepeer-review

Electronic versions

Documents

  • Do momentum and reversal strategies work in commodity futures A comprehensive study ACCEPTED VERSION

    1.31 MB, Word document

DOI

  • Andrew Urquhart
    University of Reading
Purpose
Motivated by the debate on the patterns and sources of commodity futures returns, this paper investigates the performance of three investment trading strategies, namely, the momentum strategy of Jegadeesh and Titman (1993), the 52-week high momentum strategy of George and Hwang (2004) and the pairs trading strategy of Gatev et al. (2006) in the commodity futures market.

Design/methodology/approach
The three strategies are those given by Jegadeesh and Titman (1993), George and Hwang (2004) and Gatev et al. (2006), respectively.

Findings
The authors find that there is no significant reversal profit across 189 formation-holding windows for all the three strategies. However, there are statistical and economically significant momentum profits, and the profitability increases with the rising of formation-holding periods. Momentum returns are quite sensitive to market conditions but the crash of momentum returns is partly predictable. Return seasonality, risk and herding also provide partial explanation of the momentum profits.

Originality/value
The authors are the first to compare the performances of the pairs trading strategy of Gatev et al. (2006), the conventional momentum of Jegadeesh and Titman (1993), and the 52-week high momentum of George and Hwang (2004) under 189 formation-holding windows. Also, the authors are the first to investigate the association between herding behaviour and momentum returns in the commodity futures market.
Original languageEnglish
JournalReview of Behavioural Finance
Early online date23 Apr 2020
DOIs
Publication statusPublished - 15 Oct 2020
View graph of relations