Predicting Commodity-futures Basis Factor Return by Basis Spread

摘要

A growing body of literature confirms the significance of the commodity futures basis factor. It has a significantly positive premium and it explains the cross-section of commodity-futures excess returns. We extend the literature by documenting the predictive relation between this factor and the inter-quartile spread in the basis; the predictability of the basis factor return has not been previously reported. From the simple regression analysis of the historical commodity futures data we show that the basis spread is a strong predictor of the basis factor return. We discuss the implication of this finding on the nature of the basis factor; we also discuss the market timing strategies based on the basis spread.