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Alternative Market Briefing

Campbell & Company deconstruct roll yield and its impact on portfolio performance

Thursday, February 27, 2014

Bailey McCann, Opalesque New York:

In a new white paper, Campbell & Company examines roll yield and addresses misconceptions regarding its nature, measurement and relevance. Roll-yield is a sometimes overlooked component of futures returns, that can have a significant impact on the gain or loss a futures investor experiences over the lifetime of a trade.

Paper authors assert that a wide variety of misconceptions about roll yield exist, including its origin, measurement and relationship to other concepts such as carry trading and trend following. "One of the most pervasive misconceptions is that roll yield represents a realized gain or loss generated on the day of the contract roll, as a long investor sells the expiring contract and buys the new active contract (or a short investor takes the opposite steps). Another is that roll yield is an abstract concept and that accounting separately for roll yield and spot market returns is a pointless pursuit. Yet another misconception is that roll yield creates arbitrage opportunities: that an investor can lock in a guaranteed profit by going long markets with positive roll yield and short markets with negative roll yield," authors write.

Taken together these misconceptions can impact the way a trade is viewed. According to the paper, to understand the real effect of roll-yield, the way it is calculated should change. Joining the front contract prices in a way that accounts for the rolls results in a price series that refle......................

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