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

Zhang, H. and Urquhart, A. ORCID: https://orcid.org/0000-0001-8834-4243 (2020) Do momentum and reversal strategies work in commodity futures? A comprehensive study. Review of Behavioural Finance, 12 (4). pp. 375-409. ISSN 1940-5979 doi: 10.1108/RBF-05-2019-0067

Abstract/Summary

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.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/87467
Identification Number/DOI	10.1108/RBF-05-2019-0067
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Emerald
Download/View statistics	View download statistics for this item