How about selling commodity futures losers?

Kang, Jangkoo and Kwon, Kyung Yoon (2019) How about selling commodity futures losers? Journal of Futures Markets, 39 (12). pp. 1489-1514. ISSN 0270-7314 (https://doi.org/10.1002/fut.22051)

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Abstract

This paper explores the benefits of extending the investment universe to commodity futures, from the perspective of momentum traders. We find that the growth-optimal portfolio includes negative (positive) weights on commodity futures losers (stock winners). Motivated by this finding, we construct a joint momentum strategy, buying stock winners and selling commodity futures losers, and show that it generates an average monthly return of up to 1.91% and provides much lower skewness (0.04) and kurtosis (1.27) than a traditional stock momentum strategy. It also greatly improves profitability, especially in unfavorable market states, and thus effectively manages tail risk.

ORCID iDs

Kang, Jangkoo and Kwon, Kyung Yoon ORCID logoORCID: https://orcid.org/0000-0002-6212-8187;
CORE (COnnecting REpositories)