Commodity momentum decomposition

Yasuhiro Iwanaga; Ryuta Sakemoto

doi:10.1002/fut.22382

Commodity momentum decomposition

Research output: Contribution to journal › Article › peer-review

Abstract

This study decomposes the momentum factor (MOM) in the commodity futures market. A high-to-price (HTP) factor generates a higher Sharpe ratio than a price-to-high (PTH) factor. We uncover that the profitability mechanisms across three momentum factors are different. The positive returns on MOM and PTH are associated with overconfidence and strong self-attribution. In contrast, HTP is linked to investors' underreaction and the information diffusion process. Moreover, we find that positive demand shocks raise the return on HTP.

Original language	English
Journal	Journal of Futures Markets
DOIs	https://doi.org/10.1002/fut.22382
Publication status	Accepted/In press - 2022

Keywords

commodity futures
decomposition
momentum

ASJC Scopus subject areas

Accounting
Business, Management and Accounting(all)
Finance
Economics and Econometrics

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10.1002/fut.22382

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title = "Commodity momentum decomposition",

abstract = "This study decomposes the momentum factor (MOM) in the commodity futures market. A high-to-price (HTP) factor generates a higher Sharpe ratio than a price-to-high (PTH) factor. We uncover that the profitability mechanisms across three momentum factors are different. The positive returns on MOM and PTH are associated with overconfidence and strong self-attribution. In contrast, HTP is linked to investors' underreaction and the information diffusion process. Moreover, we find that positive demand shocks raise the return on HTP.",

keywords = "commodity futures, decomposition, momentum",

author = "Yasuhiro Iwanaga and Ryuta Sakemoto",

note = "Funding Information: This work was supported by JSPS KAKENHI Grant Number 20K22092. The authors have benefitted from an editor (Bart Frijns) and two anonymous reviewers. We acknowledge many fruitful suggestions by Shingo Goto. We are grateful to Scott R. Baker, Nick Bloom, Steven J. Davis, Sydney Ludvigson, and Jeffrey Wurgler for sharing the data sets. Any remaining errors are our responsibility alone. Publisher Copyright: {\textcopyright} 2022 Wiley Periodicals LLC.",

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AU - Iwanaga, Yasuhiro

AU - Sakemoto, Ryuta

N1 - Funding Information: This work was supported by JSPS KAKENHI Grant Number 20K22092. The authors have benefitted from an editor (Bart Frijns) and two anonymous reviewers. We acknowledge many fruitful suggestions by Shingo Goto. We are grateful to Scott R. Baker, Nick Bloom, Steven J. Davis, Sydney Ludvigson, and Jeffrey Wurgler for sharing the data sets. Any remaining errors are our responsibility alone. Publisher Copyright: © 2022 Wiley Periodicals LLC.

PY - 2022

Y1 - 2022

N2 - This study decomposes the momentum factor (MOM) in the commodity futures market. A high-to-price (HTP) factor generates a higher Sharpe ratio than a price-to-high (PTH) factor. We uncover that the profitability mechanisms across three momentum factors are different. The positive returns on MOM and PTH are associated with overconfidence and strong self-attribution. In contrast, HTP is linked to investors' underreaction and the information diffusion process. Moreover, we find that positive demand shocks raise the return on HTP.

AB - This study decomposes the momentum factor (MOM) in the commodity futures market. A high-to-price (HTP) factor generates a higher Sharpe ratio than a price-to-high (PTH) factor. We uncover that the profitability mechanisms across three momentum factors are different. The positive returns on MOM and PTH are associated with overconfidence and strong self-attribution. In contrast, HTP is linked to investors' underreaction and the information diffusion process. Moreover, we find that positive demand shocks raise the return on HTP.

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KW - decomposition

KW - momentum

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JO - Journal of Futures Markets

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Commodity momentum decomposition

Abstract

Keywords

ASJC Scopus subject areas

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