The purpose of this research is to study whether commodity managers have the ability to time factor exposures. I utilize the methodology... Show moreThe purpose of this research is to study whether commodity managers have the ability to time factor exposures. I utilize the methodology developed by Treynor and Mazuy (1966), and Henriksson and Merton (1981), and apply the four-factor commodity model of Blocher et al (2018). Specifically, I measure market timing, momentum timing, the high term (realized term premia for the commodities with above‐median basis), and low term (realized term premia for the commodities with below‐median basis) skills. These factors are chosen because each one, separately, captures a risk premium embedded in commodity futures.My results indicate that commodity managers’ returns have some statistically significant market timing abilities. This means that many managers increase exposure to the nearest contract when the spot premium return is high and decrease exposure when the spot premium return is low. Momentum timing, high term timing, and low term timing are not observed. When looking at different strategies, technical managers demonstrate stronger market timing ability than fundamental managers. Show less
