I came across the above named paper (a quick google will get you a pdf copy) a few months ago now and have been meaning to take a closer look at the topic of skewness and it’s applicability in predicting returns on commodity futures. I don’t normally get a lot of value from “academic” papers, as I find they’re largely written by non-practitioners looking to impress other non-practitioners. That said, I’ve read some of this particular paper’s authors’ works before and have found their past analysis of term structure and hedging pressure worthwhile reading. Anyway over the next few days/weeks I plan to put some time aside to see if I can use historical skew in any way to improve my trading profitability. By posting here, this may or may not benefit others, but I’m hopeful that I’ll also learn from any constructive feedback. Who knows, there may be some among you that have already examined this precise issue, but regardless I look forward to any thoughts along the way. For those who may be unfamiliar with skew, it’s a pretty standard statistical measure that when applied to returns of financial markets basically says that if a market has in recent times had a lot of big up days then it can be described as having a positive skew and vv. if a market has had a lot of big down days then it has a negative skew over that time period. Note that it pays no attention to the overall direction of a market, but simply the relationship between the size/frequency of up and down days. OK so that’s not a textbook definition but its good enough for our purposes. So the authors are simply looking to examine if there is a relationship between past skewness and subsequent commodity returns … much in the same way that many papers have looked at the relationship between say, past momentum and subsequent returns. And surprise, surprise they do indeed find that there is a relationship such that … “Systematically buying commodities with low total skewness and shorting commodities with high total skewness generates a significant excess return” … of course this is really no surprise as the paper would not have been published if no relationship was found The methodology they use is to implement a simple rotational strategy that each month, from a portfolio of 27 commodities buys the commodities with the 20% lowest skew and sells the commodities with the 20% highest skew using a range of different lookbacks to measure each market’s skew. So that should be pretty easy to replicate in an attempt to verify the results, but more importantly also intend to consider a number of practical issues that real world traders may face. I will post results of my back-testing along with other pre-test considerations shortly, however any early feedback or advice is welcome and feel free to pm me if you would prefer.