Work

Spot‐Based Basis and Basis Momentum in Commodity Futures Markets

Year: 2026

Type: article

Abstract: ABSTRACT This paper revisits two widely studied predictors of commodity futures returns, basis and basis momentum, whose conventional measures using first‐nearby futures as proxies for spot prices may limit their ability to capture fundamental spot‐market risks. Motivated by this limitation, we construct two spot‐based signals from observed spot and futures prices, which are theoretically shown to contain incremental information about future returns beyond conventional measures. Using 41 Chinese commodity futures, we find that these signals robustly predict subsequent first‐nearby contract returns and remain significantly priced in time‐series and cross‐sectional tests, even after controlling for their conventional counterparts. We then develop a spot‐enhanced three‐factor model, including the market factor and the two spot‐based factors, which consistently outperforms three widely used benchmark models in pricing competing factors and explaining return anomalies.

Source: Journal of Futures Markets

DOI: 10.1002/fut.70145

Authors: Zudong Luo, Shan Xue, Fuxiang Yu, Huashi Li, Ye Du

Institutions: Southwestern University of Finance and Economics, Leshan Normal University, Duality (United States)

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funder: National Natural Science Foundation of China

Award: G3258769359