Exploiting the dynamics of commodity futures curves

Bianchi, Robert J.; Fan, John Hua; Miffre, Joëlle; Zhang, Tingxi

doi:10.1016/j.jbankfin.2023.106965

Cited by 3 publications

(2 citation statements)

References 44 publications

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“…For ease of comparison, we present a heatmap style plot in Table 5 to summarize the factor performance gains using trailing-stop over its unmanaged (Panel A) and volatility-managed counterparts (Panel B). To mitigate the influence of 6 The estimated portfolio turnover across seven traditional risk premia averages at 1.36 during a similar sample period in Bianchi et al (2023). This suggests our TCs are likely overestimated by at least 40%, hence increase our confidence in the net return statistics.…”

Section: Transaction Costsmentioning

confidence: 99%

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Commodity premia and risk management

Fan,

Zhang

2024

Journal of Futures Markets

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We examine the role of risk management in the context of commodity factor premia. Stopping losses in individual commodities effectively improves the average returns of long‐short commodity premia through persistent reduction in the frequency and severity of drawdowns. The magnitude of improvement is related to the quality of the signal, commodity return volatility, and autocorrelations, as well as transaction costs. The efficacy of a stop‐loss strategy can be enhanced by dynamically calibrating loss thresholds in accordance with realized volatility, and it performs best in high conviction weighting schemes. Overall, we highlight the pivotal role of risk management beyond volatility targeting and risk‐parity in harnessing commodity risk premia.

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Section: Transaction Costsmentioning

confidence: 99%

“…For details on factor construction, refer to Appendix A andBianchi et al (2023). We form factor portfolios using the entire cross-section, with a breakpoint of two and rebalance the factor portfolio monthly back to equal weights.…”

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confidence: 99%