Time Series Momentum Effect In China’s Commodity Futures Market

The asset momentum effect reflects the continuity of asset returns and is a common anomaly in the capital market.Asset momentum effects include crosssectional momentum effect and time-series momentum effect.Cross-sectional momentum effect means that assets with higher returns in the past will perform better in the future,and assets with lower returns in the past will perform worse in the future.Cross-sectional momentum compares different assets in the same cross-section.However,time series momentum effect focuses on the past returns of a single asset,showing that the past cumulative returns of assets are predictive of future returns.Time series momentum has been a research hotspot in the field of empirical asset pricing in recent years,but most of the research focuses on the financial markets of developed countries,and few literatures involve the Chinese commodity futures market.On the other hand,the scale and influence of China’s commodity futures market play extremely important roles in the world,especially trading volume of many agricultural futures ranking among the top ten in the world.Employing the Nanhua Commodity Futures Index,and considering the representative commodity futures and time length of the data,this paper selects ten commodity futures.This paper analyzes time series momentum effects in China’s commodity futures market.Firstly,we found that there is a time series momentum effect in China’s commodity futures market although there is a shorter return continuation period than that in American’s commodity futures market.Next,from the perspective of Sharpe ratio,risk factor-adjusted excess return and strategy cumulative return,time series momentum strategy is significantly better than time series historical strategy.Also,in terms of excess returns adjusted by risk factors,time series momentum strategy is significantly better than the cross-sectional momentum strategy.Next,we found that the formation period of the time series momentum is shorter and the performance of the time series momentum strategy is better.Last,the profitability of the time series momentum strategy is related to the ability of past cumulative returns to predict future returns—the higher the forecast ability is and the more profitable the strategy will be,and that profitability cannot be explained by investor sentiment factors and economic policy uncertainty factors.