Evidence on Risk/Return Patterns in Cash and Futures Markets

Abstract

Active investment strategies at the asset–class level and at the security level have been criticized for being inconsistent with market efficiency. Futures and options–based systematic commodity trading advisor strategies have been further criticized on the basis that they trade in risky markets that do not offer a 'natural' return. This article surveys some of the substantial and growing academic literature indicating that market inefficiencies may be a real source of returns to systematic commodity trading advisor investment strategies. Specifically, theory and empirical evidence on calendar effects, trends and reversals, and volatility patterns in returns in the stock, bond, and foreign currency cash and futures markets are discussed.