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Managing volatility in commodity momentum

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  • Qi Xu
  • Ying Wang

Abstract

We empirically investigate the effect of managing volatility in commodity momentum. Using Chinese commodity futures data, we show that managing volatility significantly improves the performance of commodity momentum. Including the new strategy significantly enhances asset allocation performance. Then, we explore several potential explanations for the profitability of the new strategy. Commodity‐specific factors, business cycle risk, financial market conditions, investor sentiments, transaction costs, leverage constraints, and data‐snooping bias do not fully account for this profitability. The profitability is in line with the predictability of momentum‐specific risk rather than aggregate market risk. Comprehensive robustness checks support our main findings.

Suggested Citation

  • Qi Xu & Ying Wang, 2021. "Managing volatility in commodity momentum," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(5), pages 758-782, May.
    • Handle: RePEc:wly:jfutmk:v:41:y:2021:i:5:p:758-782
    DOI: 10.1002/fut.22195
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    3. Mário Correia Fernandes & José Carlos Dias & João Pedro Vidal Nunes, 2024. "Performance comparison of alternative stochastic volatility models and its determinants in energy futures: COVID‐19 and Russia–Ukraine conflict features," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(3), pages 343-383, March.

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