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The predictive performance of commodity futures risk factors

Ahmed, S and Tsvetanov, D (2016) 'The predictive performance of commodity futures risk factors.' Journal of Banking and Finance, 71. 20 - 36. ISSN 0378-4266

Commodity Forecasting_JBF.pdf - Accepted Version

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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
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Depositing User: Jim Jamieson
Date Deposited: 20 Jul 2016 11:02
Last Modified: 30 Mar 2021 17:15

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