Image from Google Jackets

The Tactical and Strategic Value of Commodity Futures / Claude B. Erb, Campbell R. Harvey.

By: Contributor(s): Material type: TextTextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w11222.Publication details: Cambridge, Mass. National Bureau of Economic Research 2005.Description: 1 online resource: illustrations (black and white)Subject(s): Online resources: Available additional physical forms:
  • Hardcopy version available to institutional subscribers
Abstract: Historically, commodity futures have had excess returns similar to those of equities. But what should we expect in the future? The usual risk factors are unable to explain the time-series variation in excess returns. In addition, our evidence suggests that commodity futures are an inconsistent, if not tenuous, hedge against unexpected inflation. Further, the historically high average returns to a commodity futures portfolio are largely driven by the choice of weighting schemes. Indeed, an equally weighted long-only portfolio of commodity futures returns has approximately a zero excess return over the past 25 years. Our portfolio analysis suggests that the a long-only strategic allocation to commodities as a general asset class is a bet on the future term structure of commodity prices, in general, and on specific portfolio weighting schemes, in particular. In contrast, we provide evidence that there are distinct benefits to an asset allocation overlay that tactically allocates using commodity futures exposures. We examine three trading strategies that use both momentum and the term structure of futures prices. We find that the tactical strategies provide higher average returns and lower risk than a long-only commodity futures exposure.
Tags from this library: No tags from this library for this title. Log in to add tags.
Star ratings
    Average rating: 0.0 (0 votes)
Holdings
Item type Home library Collection Call number Status Date due Barcode Item holds
Working Paper Biblioteca Digital Colección NBER nber w11222 (Browse shelf(Opens below)) Not For Loan
Total holds: 0

March 2005.

Historically, commodity futures have had excess returns similar to those of equities. But what should we expect in the future? The usual risk factors are unable to explain the time-series variation in excess returns. In addition, our evidence suggests that commodity futures are an inconsistent, if not tenuous, hedge against unexpected inflation. Further, the historically high average returns to a commodity futures portfolio are largely driven by the choice of weighting schemes. Indeed, an equally weighted long-only portfolio of commodity futures returns has approximately a zero excess return over the past 25 years. Our portfolio analysis suggests that the a long-only strategic allocation to commodities as a general asset class is a bet on the future term structure of commodity prices, in general, and on specific portfolio weighting schemes, in particular. In contrast, we provide evidence that there are distinct benefits to an asset allocation overlay that tactically allocates using commodity futures exposures. We examine three trading strategies that use both momentum and the term structure of futures prices. We find that the tactical strategies provide higher average returns and lower risk than a long-only commodity futures exposure.

Hardcopy version available to institutional subscribers

System requirements: Adobe [Acrobat] Reader required for PDF files.

Mode of access: World Wide Web.

Print version record

There are no comments on this title.

to post a comment.

Powered by Koha