Research Of The Applicability Of Momentum Strategy In Chinese Commodity Future Market

We examine the momentum strategy in Chinese commodity future market.We build 64 group base on parameterization of 4 signal period and 16 holding period.The time series is from 2009.1 to 2015.6,the objects are the 52 commodities from ZCE?DCE and SHEF.And we chose wind commodity index as market index.With respect to the set of groups the trading rules are implemented with distributional assumptions?t test and observation method.Because the buying and selling process start at the same time,the probability to win is 0.5 base on the assumption that the strategy is invalid.And we find the probability to win is significant greater than 0.5 at the 1% level using distributional assumption.So we consider the momentum strategy is valid in Chinese commodity future market.And then we compare the yield of 64 group with the yield of wind commodity future index,we find only when 4-signal and 2-holding group win the significant excess positive yield at the 10% level using t test.And we dig deeper,we find the reason that win significant excess positive yield is not because the valid of strategy,but the different calculation of yield of wind commodity future index.And then we try to find the Applicable situation for momentum strategy.It is notable that the strategy win a relatively better result at the time of 2012.2-2014.6 than other period.And by calculating the Standard Deviation of each commodity future' week-yield we draw the conclusion that the momentum strategy is more valid when the volatility is smaller.For the short-term,It is not hard to see that if the commodity future price experience a rapid rise process or a rapid decline process,it is hard to maintain the same process in the next weeks.And if the commodity future price experience a moderate rise or a moderate decline process,it maintain the process of a moderate rise or a moderate decline is more likely.And for the long-term,it must be the deviation between demand and supply which causing a rapid change in price.And the cycle will be break if the government and organization carry out some relevant policies to adjust supply or demand.So no matter for the short-term or the long-term,momentum strategy is more valid when the volatility of yieldof market is smaller.Strategy wins relatively well when the holding-time is two week and eleven week.We think it's because of the different price cycle in different variety of commodity.And when we examine the strategy in all,it appears two price cycles.And the price cycle for agricultural products is 1-2 week because for the season factor in the demand and the supply.when the holding-time is 1-2 week,the strategy gains the excess yield at 10% level compare with agricultural market.And the price cycle for energy chemical industry and others is 11-12 week(when the signal-time is longer than one week),because the demand and the supply for energy chemical industry and others is influenced by capacity and economy.When the holding-time is 11-12 week,the strategy gain the excess yield at 10% level compare with energy chemical industry and others market.Furthermore the sharp value for energy chemical industry and others is greater than the sharp value for agricultural products.One reason is the higher average weekly return which means more valid for the momentum strategy in energy chemical industry and others.The other reason is the relatively smaller in standard deviation(because the holding-time is longer).In this paper,the conclusion is that the momentum strategy is more valid for the variety when the price cycle is longer.