A Comparative Study of the Volatility and Efficiency of Commodity Futures Index Roll Methods

Abstract

We compare the volatility and efficiency of roll methods of 5 index providers across 15 individual commodity indexes to naïve rolling (rolling from nearest futures contract on its expiration date to the second nearest – “continuous futures series”). For all series and all providers, the difference in means between each index and its respective continuous futures series is not statistically significant. All indexes are consistently less volatile than their respective continuous futures series. In general, we find that roll methods are less volatile and more efficient than the continuous futures series. Implications for investors and index providers are discussed.

Keywords: roll methods, commodity indexes