This paper identifies a trend factor that exploits the short-, intermediate-, and long-run moving averages of settlement prices in commodity futures markets. The trend factor generates statistically and economically large returns during the post-financialization period 2004-2020. It outperforms the well-known momentum factor by more than nine times the Sharpe ratio and has less downside risk. The trend factor is not encompassed by extant factors and is priced cross-sectionally. An analysis of macroeconomic and other market-wide drivers suggests that this trend factor is stronger in periods of low funding liquidity as measured by the TED spread. Overall, the results indicate that there are significant economic gains from exploiting the information content of long histories of commodity futures prices.
Read Articleby