Momentum and Reversal on the Short-Term Horizon: Evidence from Commodity Markets

Speaker：Kang Wenjin, Professor, University of Macau

Host：Kang Junqing, Associate Professor, Lingnan College

Time and Date：16:00, May 26, 2026 (Tuesday)

Venue：C.S.LAM Conference Room (103), Lingnan Hall

Language：English + Chinese

Abstract：

This paper documents the coexistence of momentum and reversal on the short-term horizon. Utilizing unique investors' position data from commodity futures markets, we decompose returns into a flow component tied to speculators' net trading (Q) and an orthogonal residual component (R nonQ). We find that R nonQ can significantly and positively predict next-week return (short-term return-based momentum), while Q forecasts next-week return in a negative manner (short-term trading-based reversal) . The short-term momentum effect applies to the entire cross-section of sample commodities and also to different subsamples of commodities with different characteristics. Further analysis suggests that this short-term momentum primarily reflects speculators' trend-chasing trading behavior, which strengthens when volatility is low and when the expected profitability of momentum strategy is high. We also show that short-term momentum signals (R nonQ) can be aggregated to enhance the traditional intermediate term momentum strategy and substantially improve its performance. Moreover, with the help of more granular investors' position data, we find that the liquidity-based short-term reversal should be characterized as a reversal strategy based on past speculators' trading rather than past commodity returns. Overall, our study demonstrates that momentum and reversal coexist on the same short-term horizon in commodity markets, overturns the previous canonical "reversal-at-short-horizon, momentum-at-intermediate-horizon" segmented perception, and therefore deepens our understanding about the overall return predictability in financial markets.

Profile:

Professor Kang Wenjin is the Professor of Finance at the Faculty of Business Administration, University of Macau. Professor Kang's main research area is asset pricing. Professor Kang has published multiple influential papers on top-tier finance journals, such as the Journal of Finance and the Journal of Financial Economics. Professor Kang also serves as the Head of the Department of Finance and Business Economics and the Leader of the Financial Innovation Research Team at APAEM, University of Macau (UM). According to the UTD website, in terms of the publication on finance top-3 journals, the UM finance group has ranked among the top five Asian universities in 2025. Professor Kang obtained his Bachelor degree from Peking University and his Ph.D. degree from UCLA.