Do Sectors Matter for Commodity Pricing?

Abstract

We decompose commodity characteristics into sector-wide and sector-adjusted components to test whether these signals predict returns through sector rotation or within-sector selection. Sector-wide components account for a substantial share of the variation in sorted portfolio returns, suggesting that standard characteristic sorts may reflect broad sector exposures rather than commodity-specific mispricing. A latent factor model uncovers one dominant priced factor and several weaker ones; observable factor portfolios do not fully span these latent factors, particularly after sector adjustment. These findings indicate that factor strategies derive meaningful returns from implicit sector bets, with direct implications for portfolio construction.

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Citation

Bianchi, Daniele, and Dennis Jung. “Do Sectors Matter for Commodity Pricing?” Working paper.

@article{bianchi2025sectors,
  title={Do Sectors Matter for Commodity Pricing?},
  author={Bianchi, Daniele and Jung, Dennis},
  journal={Available at SSRN},
  year={2025}
}