Module 45.2 LOS 45.h: Contrast roll return in markets in contango and markets in backwardation

To hold the value of a long position constant, an investor must buy more contracts if the new longer-dated futures are trading at a lower price (market in backwardation) and buy fewer contracts if the new longer-dated futures are trading at a higher price (market in contango).

When a market is in contango, the roll return is negative as future prices will be higher. When markets are in backwardation, roll returns are positive.

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