Abstract:
The aim of this paper is to investigate the impact of the financialization of commodity markets on the profitability of strategies based on momentum and term structure. The performance of an array of portfolios from double-sorts on non-commercial traders’ participation, historical returns and term spreads are tested against a risk model. Both strategies reveal better performance in the case of commodities with low financialization level and generate little profits in the markets with significant presence of financial investors. The findings of this study can be used for the purposes of tactical asset allocation and employed in construction of a commodity futures pricing model which would account for the impact of financial investors.
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