Testing Futures Skew with ATR Sizing and Term-Structure Filters

Summary

This research note studies return skewness as a cross-sectional factor for commodity futures. It tests long-short and long-only portfolios across all contracts, agricultural contracts, and non-agricultural contracts, then explores lookback choices, ATR-based leverage control, and term-structure filters. The proposed rationale connects skew to return tails, investor preferences, and hedging pressure, while the portfolio construction uses futures-index returns to calculate the factor.

In the reported sample from June 2017 through June 2022, the strongest baseline result is a long-only non-agricultural portfolio, with a stated Sharpe ratio of 1.17; the author reports a higher Sharpe after ATR-based leverage management and further improvement after filtering on term-structure conditions. These results are historical backtests, and the article notes that the single factor did not avoid a broad commodity-market drawdown. The agricultural and non-agricultural split is coarse, the described tests omit finer industry differences, and the term-structure measure is acknowledged as an imperfect representation of curve conditions.

Key ideas

• The factor is constructed from the skewness of commodity futures index returns.
• The article reports stronger results for non-agricultural contracts and a long-only portfolio than for several alternatives.
• ATR-based leverage management lowers exposure as volatility rises and caps leverage at the stated maximum.
• Backwardation and a measure of contract-spread skewness are tested as filters for the long-only strategy.
• The backtests cover a limited historical window and include a significant drawdown that the factor alone did not prevent.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.