Momentum and mean-reversion in commodity spot and futures markets

Chaves, Denis B.; Viswanathan, Vivek

doi:10.1016/j.jcomm.2016.08.001

Cited by 27 publications

(27 citation statements)

References 20 publications

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“…Therefore, the mean reversion phenomenon provides an opportunity to investors to forecast the future values of the equity returns on the basis of past values. These findings are also consistent with previous literature (Al-Hajieh, 2017;Chaudhuri & Wu, 2003;Chaves & Viswanathan, 2016;Chen et al, 2012;Mohammadi, 2017;Riaz, 2014). The results of the present study further determined the speed of mean reversion of emerging and developed stock markets by using the half-life method.…”

Section: Discussionsupporting

confidence: 93%

“…The theory of mean reversion demonstrates that after touching a certain extreme point, the equity prices return back to their mean prices (Arefin & Ahkam, 2017;Chi, Dong, & Wong, 2016;Lubnau & Todorova, 2015;Ribeiro, Cermeño, & Curto, 2017). The phenomenon is known as the mean reversion if the equity price has a tendency to come back its original long-term average price after some certain time period (Chaves & Viswanathan, 2016;Huang, 2017;Huggins & Schaller, 2013;Trypsteen, 2017). According to Hillebrand (2003), the mean reversion varies in the equity return, following a path that is determined by past reaction to changes.…”

Section: Background Of the Research Studymentioning

confidence: 99%

“…The flow of research studies regarding the short-term mean reversion has also been increased due to the access of information on a daily basis regarding the investments. Hence, short-term mean reversion was found to be more attractive than the long-term mean reversion process (Chaves & Viswanathan, 2016;Huang, 2017;Neaime, 2015;Wang et al, 2015). If the stock underperforms within a one-year time period and after one year it overperforms then this phenomenon is known as the long-term mean reversion.…”

Section: Substantiation From the Literaturementioning

confidence: 99%

“…If the stock returns follow the mean reversion then it is easy to predict the future returns of the stocks on the basis of past information, which is the most important reason behind these studies (Gulay & Emec, 2017). According to Mohammadi (2017), Chaves and Viswanathan (2016), Hart et al (2015), Tsekrekos and Yannacopoulos (2016), Lubnau and Todorova (2015) and Balvers, Wu, and Gilliland (2000), the mean reversion process provides an opportunity to earn more profit because investors buy stocks at the lowest prices and sell them when they become more profitable by using the constrained trading strategy (Chen, Jiang, & Li, 2012). Substantial work was carried out by Neaime (2015) and Hakim and Neaime (2003), who reviewed the mean reversion behaviour of stock markets of Middle East and North African (M.E.N.A.)…”

Section: Mean Reversion In Stock Pricesmentioning

confidence: 99%

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Mean reversion in international markets: evidence from G.A.R.C.H. and half-life volatility models

Ahmed

Vveinhardt

Štreimikienė

et al. 2018

Economic Research-Ekonomska Istraživanja

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The objective of this research is to examine and compare the mean reversion phenomenon in developed and emerging stock markets. An important aim is to measure and compare the speed of mean reversion and half-life of volatility shocks of emerging and developed markets. For this purpose, we have selected five developed and seven emerging markets, and used daily market indices for the period of 1 January 2000 to 30 June 2016. We employed autoregressive conditional heteroskedasticity -Lagrange multiplier (A.R.C.H.-L.M.), generalised autoregressive conditional heteroskedasticity (G.A.R.C.H.) (1, 1), and half-life volatility shock techniques to carry out this research. The results of the study confirmed the mean-reverting process in developed and emerging markets. The South Korean market has the slowest mean reversion, and thus has the highest comparative volatility over a longer period of time. However, the Pakistan stock exchange exhibited the fastest mean reverting process. It is also concluded that the relative volatilities are higher in emerging markets, whereas the comparative volatilities are higher in developed markets. Therefore, it is further concluded that the mean reversion process is much faster in emerging indices except the South Korean and Chinese markets. The study recommends that if investors want higher returns in a shorter period of time then they should invest in emerging markets.

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Section: Discussionsupporting

confidence: 93%

Section: Background Of the Research Studymentioning

confidence: 99%

Section: Substantiation From the Literaturementioning

confidence: 99%

Section: Mean Reversion In Stock Pricesmentioning

confidence: 99%

See 2 more Smart Citations

Mean reversion in international markets: evidence from G.A.R.C.H. and half-life volatility models

Ahmed

Vveinhardt

Štreimikienė

et al. 2018

Economic Research-Ekonomska Istraživanja

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“…Thus, a variable is said to be exhibited mean reversion behavior, if it has the tendency to revert back to its long-term average value over the period. Therefore, referring exhibiting mean reversion synonymous with showing long-term average returns (e.g., Chaves, Viswanathan 2016;Boussaidi, Kouki 2015;Huggins, Schaller 2013;etc.). Similarly, Hillebrand (2003) explains mean reversion as changes in the market returns or prices following a direction that is exhibiting a reversion level, which is observed in reaction to previous changes made.…”

Section: Introductionmentioning

confidence: 99%

Speed of Mean Reversion: An Empirical Analysis of Kse, Lse and Ise Indices

Palwasha

Ahmad

Ahmed

et al. 2018

Technological and Economic Development of Economy

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Abstract. The purpose of this study is to determine the presence of mean reversion in the stock markets indices of Pakistan, moreover, to measure, and compare the speed of mean reversion of the stock markets indices across Pakistan. In order to carry out the research study, the daily data of three stock indices of Pakistan such as: KSE-100, LSE-25 and ISE-10 are collected from 2003 to 2014. After the application of tests such as ARCH and GARCH, it was found that returns series of KSE-100, LSE-25 and ISE-10 indices exhibit mean reversion, indicating that the returns revert back to their historical value after reaching an extreme value. Further, the mean reversion rate shows that KSE-100 index has the slowest mean reversion, however, the ISE-10 index has the fastest mean reversion among the three indices. Therefore, the results of the study concluded that KSE-100 index, due to the slowest mean reversion rate has higher volatility over a longer period of time. On the contrary, since, ISE-10 index has exhibited the fastest mean reversion with the lowest volatility as compared to others. But due to fast mean reversion rate, it will help investors to gain profits over a shorter period of time. Thus, it can be recommended that the investor willing to bear the risk of time and looking for long-term investment should invest in KSE-100 index. However, investors looking for higher profits in a shorter period can invest in the ISE-10 index but with higher risk-returns trade-off.

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Commodity momentum and reversal: Do they exist, and if so, why?

Han

2023

Journal of Futures Markets

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Questions as to why differences in momentum and reversal patterns seem to emerge in commodity futures compared with spot markets, and how these patterns can be explained, remain unanswered. To investigate these questions, I examine 23 commodities over a period of 60 years. I first show that including the net convenience yield in the definition of commodity spot returns reconciles the differences in the results for commodity spot and futures markets. Both commodity futures and spot markets exhibit quantitatively consistent momentum and reversal effects. An initial momentum effect is followed by a reversal effect and then another momentum effect. These observed patterns in commodities can be jointly explained by a combination of traditional asset pricing factors and a basis factor related to the net convenience yield.

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Momentum and mean-reversion in commodity spot and futures markets

Cited by 27 publications

References 20 publications

Mean reversion in international markets: evidence from G.A.R.C.H. and half-life volatility models

Mean reversion in international markets: evidence from G.A.R.C.H. and half-life volatility models

Speed of Mean Reversion: An Empirical Analysis of Kse, Lse and Ise Indices

Commodity momentum and reversal: Do they exist, and if so, why?

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