Department of Banking and Financial Management University of Piraeus
Academic Seminar Series
Thursday, May 25th, 2023 / Time: 16:15 – 17:30, Online
News Tone-Overlay for Tactical Commodity Allocations
Bayes Business School
We propose a commodity news tone-overlay strategy towards honing extant tactical allocations. The idea is to embed the predictive content of commodity-specific news tone into traditional sorting signals such as basis and hedging pressure inter alia. Implementing the tone-overlay strategy on a cross-section of 26 commodity futures contracts for seven traditional signals, we document an improvement in the out-of-sample premia, downside risk profile and risk-adjusted profitability. The efficacy of the tone-overlay strategy is confirmed by a placebo test and remains sizeable after transaction costs. As a by-product, the tone-overlay portfolios provide better risk diversification to equity holders than the corresponding traditional portfolios. Consistent with the presence of capital-induced arbitrage constraints, the performance gains of the tone-overlay portfolios are more sizeable during recessions and periods of elevated financial market stress when funding liquidity deteriorates. Accordingly, the evidence suggests that it pays to deploy the tone-overlay dynamically to acknowledge market conditions.
Ana-Maria Fuertes is Professor of Finance at Bayes Business School, City, University of London. She holds a BSc in Industrial Engineering, an MSc in Electrical Engineering and a PhD in International Finance. Ana-Maria has served as Associate Editor for the Journal of the Royal Statistical Society, and as Guest Editor of the Journal of Economic Behaviour and Organization, and Computational Statistics and Data Analysis. Her research interests cover commodity markets, credit risk modelling and forecasting, and empirical asset pricing. She has published research articles in the Review of Finance, Journal of Banking and Finance, Energy Economics, Journal of Economic Dynamics and Control, Journal of International Money and Finance, Journal of Financial Services Research and International Journal of Forecasting. She has delivered Statistics courses for the Institute of Fiscal Studies and Deutsche Bank, and contributed to practitioner journals such as Investment & Pensions Europe, Hedge Funds Review and policy-oriented journals such as Vox-CEPR and CEPS.
This seminar will be online on Teams. Click here to attend