Sources of return in the commodity market

By Christian Betz, Jyske Capital

This article surveys sources of return in the commodity market seen from an investor's point of view. The purpose is to review some of the scientific articles that identify and explain sources of return. The purpose is also quantitatively to isolate identified sources of return and describe their properties.


Sources of return with respect to the equity market have for many years been the subject of comprehensive research. In addition, the focus of attention has in recent years been on sources of return in other asset classes including the commodity market, for instance Asness et al (2012). This has resulted in several analyses, theoretical and practical, which also relate to sources of return across asset classes. Hence, the sources of return are regarded as remuneration (at least partial) of specific generic risks across asset classes. 

The purpose of the article is to review part of the research relating to sources of return in the commodity market known from the analysis of the equity and fixed-income market. The purpose is also a quantitative description of sources of return using CMCI indices of the individual commodity futures which are characterised by a broad coverage of the forward curve. By far the majority of research papers solely use price data from the ultra short end of the forward curve. 

The following sources of return will be described: Value, Momentum, Carry and Low Risk. Also, sources of return relating to the commodity market will be described: Hedge Pressure and Seasonality.