TY - JOUR T1 - The Optimal Approach to Futures Contract Roll in Commodity Portfolios JF - The Journal of Alternative Investments SP - 51 LP - 60 DO - 10.3905/JAI.2010.12.3.051 VL - 12 IS - 3 AU - Tammam Mouakhar AU - Mathieu Roberge Y1 - 2009/12/31 UR - https://pm-research.com/content/12/3/51.abstract N2 - This article discusses the necessity of managing the futures contract roll and argues that most commodity index providers set futures rollover rules in an inefficient manner. Generally, most index providers roll futures by replacing the next futures contract to reach maturity with the subsequent futures contract to do so. Depending on the curvature of the commodity futures term structure, such a practice might be acceptable or might lead to automatic losses. This article presents an optimal approach that maximizes gains with a term structure in backwardation and minimizes losses with a term structure in contango. The proposed approach is independent of the position held by the investor, i.e., it dictates the optimal way to roll a short or a long position. The benefits of this approach are illustrated by comparing the performance using this approach to that of the standard approach to rollover. The comparison is done both at the individual commodity level and at the portfolio level. Results confirm the crucial importance of handling roll operations in commodity futures investing and show that an optimized approach to roll could improve performance.TOPICS: Commodities, futures and forward contracts, quantitative methods, performance measurement ER -