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Commodities: an asset class in their own right?

Author

Listed:
  • Mongars, P.
  • Marchal-Dombrat, C.

Abstract

Investor interest in commodities has risen in recent years in line with the spectacular surge in most commodity prices. Some institutional investors, for instance Dutch or Californian pension funds, have confirmed that they have gained or intend to gain moderate exposure (less than 5% of their assets) to commodities. In parallel, the development of new investment vehicles has enabled individual investors also to gain commodity exposure. Expectations of continued strong economic growth in Asia, which should result in Asian countries’ sustained demand for commodities, may be the driver of the increased appetite for these assets. Interest also seems to be spurred by studies by academics and market analysts that highlight commodities as an effective way of diversifying portfolio risk. This assessment and interpretation suggest that investors are slowly but sustainably including commodities in their portfolios. Can we however assert that commodities constitute an asset class in their own right? This study suggests they do, given that over the long term, returns on commodity-related investments appear to outperform risk-free returns, seem to have a low or negative correlation with other asset classes and can apparently not be replicated with a simple linear combination of assets.

Suggested Citation

  • Mongars, P. & Marchal-Dombrat, C., 2006. "Commodities: an asset class in their own right?," Financial Stability Review, Banque de France, issue 9, pages 31-38, December.
  • Handle: RePEc:bfr:fisrev:2006:9:1
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    Cited by:

    1. William Arrata & Alejandro Bernales & Virginie Coudert, 2013. "The effects of Derivatives on Underlying Financial Markets: Equity Options, Commodity Futures and Credit Default Swaps," Post-Print hal-01410748, HAL.
    2. Niels C. Thygesen & Robert N. McCauley & Guonan Ma & William R. White & Jakob de Haan & Willem van den End & Jon Frost & Christiaan Pattipeilohy & Mostafa Tabbae & Ernest Gnan & Morten Balling & Paul , 2013. "50 Years of Money and Finance: Lessons and Challenges," SUERF 50th Anniversary Volume - 50 Years of Money and Finance: Lessons and Challenges, SUERF - The European Money and Finance Forum, number 1 edited by Morten Balling & Ernest Gnan, March.
    3. Batten, Jonathan A. & Kinateder, Harald & Szilagyi, Peter G. & Wagner, Niklas F., 2017. "Can stock market investors hedge energy risk? Evidence from Asia," Energy Economics, Elsevier, vol. 66(C), pages 559-570.
    4. Virginie Coudert & Hélène Raymond-Feingold, 2011. "Gold and financial assets: Are there any safe havens in bear markets?," Economics Bulletin, AccessEcon, vol. 31(2), pages 1613-1622.
    5. William Arrata & Alejandro Bernales & Virginie Coudert, 2013. "The Effects of Derivatives on Underlying Financial Markets: Equity Options, Commodity Derivatives and Credit Default Swaps," SUERF 50th Anniversary Volume Chapters, in: Morten Balling & Ernest Gnan (ed.), 50 Years of Money and Finance: Lessons and Challenges, chapter 13, pages 445-473, SUERF - The European Money and Finance Forum.
    6. Jonathan A. Batten & Peter G. Szilagyi & Wagner, 2015. "Should emerging market investors buy commodities?," Applied Economics, Taylor & Francis Journals, vol. 47(39), pages 4228-4246, August.
    7. Bossman, Ahmed & Agyei, Samuel Kwaku, 2022. "Interdependence structure of global commodity classes and African equity markets: A vector wavelet coherence analysis," Resources Policy, Elsevier, vol. 79(C).

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