An analysis of diversification benefits of commodity futures using Markov regime-switching approach

Jaiswal, Ritika; Uchil, Rashmi

doi:10.1504/aajfa.2018.10009896

Cited by 2 publications

(2 citation statements)

References 27 publications

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“…Many of these investors are using commodity futures as an investment vehicle for making strategic and tactical allocations. Strategic allocations of commodity futures are highly valued due to the benefits of the long-term equity-like returns, the diversification benefits, and the inflation hedging potentials (Bodie & Rosansky, 1980;Jensen, Johnson & Mercer, 2002;Erb & Harvey, 2006;Gorton & Rouwenhorst, 2006;Jaiswal & Uchil, 2016;2018a;2018b). In addition to the strategic asset allocations, commodity futures are used for tactical asset allocations to generate abnormal alphas as shown by previous studies (Erb & Harvey, 2006;Miffre & Rallis, 2007).…”

Section: Introductionmentioning

confidence: 99%

Time-Varying Conditional Profitability of Momentum Strategies in Commodity Futures Market: Evidence from India

Jaiswal¹,

Uchil²

2020

AJBA

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Manuscript type: Research paperResearch aims: This study aims to provide fresh evidence on the presence of momentum profitability in the commodity futures market of India. Design/Methodology/Approach: The sample of this study consists of highly traded commodity futures contracts taken from the commodity market of India over the period of 2006-2017. This study applies the conditional multi-factor model to test the time-varying performance of the momentum strategies.Research findings: This study confirms the existence of exceptionally high abnormal momentum profitability in the commodity futures market despite the consideration of transaction costs. However, subsample analysis and the application of conditional multi-factor model suggest that momentum profits are essentially time-varying. The low and insignificant correlation of momentum portfolios with stocks and bonds confirm that the relative strength of the momentum portfolios of commodity futures are part of an effective strategy to create a welldiversified portfolio. Theoretical contribution/Originality: This study examines the timevarying conditional profitability of momentum strategies for the commodity futures market of emerging economies such as India.

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Section: Introductionmentioning

confidence: 99%

Time-Varying Conditional Profitability of Momentum Strategies in Commodity Futures Market: Evidence from India

Jaiswal¹,

Uchil²

2020

AJBA

Self Cite

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“…Normally, it is observed that the prices of an asset which move with inflation can be used as a hedge against stock and bond market plunge. As stock and bond markets fail to sustain their value during the period of unexpected inflation (Jaiswal and Uchil, 2015). These facts are providing the strong motivation to do an empirical analysis of hedge and safe haven property of gold futures against stock and bond market movements.…”

Section: Introductionmentioning

confidence: 99%

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2018

IJEFI

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This study incorporates the regime switching framework to investigate the hedge and safe haven property of gold futures against the stock and bond market movements. The Markov-Switching Vector Autoregression (MS-VAR) model is adopted, which splits the whole sample period into two extreme regimes. One of the regimes accounts for the period of high volatility in stock and bond returns and enables to verify the safe haven role of gold futures. Conversely, another regime represents the period of average stock returns and low volatility which allows to define the hedging potential of gold futures. The results demonstrate weak hedging potential of gold futures against the stock and bond market movements. However, during the financial turmoil and extreme market movements, gold futures cannot be used as a safe haven. In addition, portfolio analysis confirms that findings of MS-VAR are useful for investors and fund managers to get improved risk-adjusted return from the portfolio. The empirical findings nullify the conventional wisdom attached to the gold futures with respect to their safe haven property and have pervasive policy implication with respect to this.

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An analysis of diversification benefits of commodity futures using Markov regime-switching approach

Cited by 2 publications

References 27 publications

Time-Varying Conditional Profitability of Momentum Strategies in Commodity Futures Market: Evidence from India

Time-Varying Conditional Profitability of Momentum Strategies in Commodity Futures Market: Evidence from India

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