A1001
Title: The skewness of commodity futures returns
Authors: Ana-Maria Fuertes - City University London (United Kingdom)
Joelle Miffre - EDHEC Business School (France) [presenting]
Adrian Fernandez-Perez - Auckland University of Technology (New Zealand)
Bart Frijns - Auckland University of Technoloigy (New Zealand)
Abstract: The relationship between skewness of the distribution of past returns and expected returns in commodity futures markets is explored. Both time-series tests and cross-sectional tests indicate that more positively skewed commodities accrue significantly lower mean excess returns. Sorting a cross-section of commodities by their past skewness, we demonstrate that a fully collateralized portfolio that buys commodities with the most negative skewness and shorts commodities with the most positive skewness earns an excess return of 8.01$\%$ a year. A commodity pricing model that utilizes as risk factors the excess returns of a long-only equally-weighted portfolio of all commodities, alongside term structure, momentum, and hedging pressure portfolios yields a significant alpha of 6.58$\%$ obtained which indicates that the profitability of skewness portfolios is not a mere manifestation of backwardation and contango risk. Skewness risk may uniquely relate to the preferences of investors for lottery-like commodity futures. The findings are robust to transaction costs, liquidity considerations and sample periods.
