The Performance of Simple Dynamic Commodity Strategies
Posted: 4 Mar 2009 Last revised: 27 Jun 2014
Date Written: March 4, 2009
We construct dynamic trading strategies based on the theories of Cootner (1960), Stoll (1979) and Hirshleifer (1990). These strategies are constructed using the aggregate positions of hedgers and speculators. Our active strategies applied to 13 liquid commodity futures outperform buy-and-hold strategies for 10 of the 13 commodities, suggesting that tactical trading is a source of enhanced performance in commodity futures markets. Our findings underline the importance of hedging both price risk and quantity risk, and point to the need to dynamically trade commodity futures.
Keywords: Commodity futures, Hedging pressure, Active strategies
JEL Classification: G13, G14
Suggested Citation: Suggested Citation