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Publication - Professor Nick Taylor

    Roll strategy efficiency in commodity futures markets

    Citation

    Taylor, NJ, 2016, ‘Roll strategy efficiency in commodity futures markets’. Journal of Commodity Markets, vol 1., pp. 14-34

    Abstract

    Issues pertaining to the investor decision to sell a security and buy another (of the same type and
    with the same terms) with a longer period until the expiration date (the roll forward decision) are
    examined. In particular, a framework is developed in which it is possible to test the trade execution
    quality efficiency of a roll strategy against a mean-variance optimal roll strategy characterized by
    multiple-day roll. Applying this framework to ve leading US grain futures markets (corn, wheat,
    soybean, soybean meal and soybean oil) demonstrates that commonly used single-day and multiple-day roll strategies (including the Goldman roll strategy) exhibit considerable inefficiencies. These
    are consistent over the markets and over the time of the day in which trading occurs, and vary
    with execution quality risk-aversion in a predictable way. A practical multiple-day roll strategy is
    proposed that reduces these inefficiencies.

    Full details in the University publications repository