Roll return - Duke Vignete

CFA Level III Portfolio Management
#1

Can anyone help me with 3 questions about roll return in Duke vignette (Alternative topic test)?

Q1&2: The CFAI’s answer includes:

  • The long position in backwardation will produce a greater roll returin than a position in contango if the price increases. -> What happens if the price decreases?

  • The backwardation in wheat futures is greater than that in Australian futures and thus has a greater roll return. -> Australian futures is in backwardation and the investor shorts the futures so the roll return from Australian futures position is definitely negative, isn’t it?

Q3: My own answer is that long wheat futures has positive roll return (long backwardation), short Australian futures has negative roll return (short backwardation), long crude oil futures has negative roll return (long contango), thus wheat futures provides largest roll return. Is my answer true?

Thank you.

#2

Can anyone explain this one please. The CFA explanation seems to be contradicting the answer.

The explanation says that a long position in backwardation will produce greater roll return, *IF* the price increases - but for the case of wheat futures, the prices are decreasing.

#3

oh sorry - i got it :slight_smile: nevermind