Commodity Futures Factors and the Choice of Active Near-Month Contracts
Article BigQuant
Summary
This report examines whether commodity futures signals and trades should use the most liquid main contract or an actively traded near-month contract. It defines active near-month contracts using liquidity and price sensitivity, then compares contract choices for basis momentum and roll-yield strategies. The report says basis momentum performed best when both the signal and the traded contract used near-month contracts, particularly over ranking periods longer than 100 days. It also introduces a spot-to-futures roll-yield measure that incorporates cash-market characteristics and delivery considerations.
Key ideas
- The most liquid main contract may be a distant maturity with weaker convergence characteristics.
- The report identifies active near-month contracts using liquidity and price sensitivity.
- Near-month signals and trades reportedly improved basis-momentum results in the tested configurations.
- A spot-informed roll-yield factor is compared with a conventional futures roll-yield measure.
- Combining basis momentum, roll yield, and inventory measures reportedly improved historical risk-adjusted results, but the findings may not persist under different market conditions.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.