The predictive performance of commodity futures risk factors

Ahmed, Shamim ORCID: 0000-0003-3712-5213 and Tsvetanov, Daniel (2016) The predictive performance of commodity futures risk factors. Journal of Banking & Finance, 71. pp. 20-36.

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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
Uncontrolled Keywords:	Commodity markets, Futures pricing, Out-of-sample predictability, Economic value, Time series, Econometric models
Depositing User:	Symplectic Admin
Date Deposited:	17 Jun 2019 08:52
Last Modified:	19 Jan 2023 00:40
DOI:	10.1016/j.jbankfin.2016.06.011
Related URLs:	Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3045883