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Holding a commodity futures index fund in a globally diversified portfolio: A placebo effect?

Author

Listed:
  • Bolong Cao

    (Ohio University)

  • Shamila Jayasuriya

    (Ohio University)

  • William Shambora

    (Ohio University)

Abstract

An increasing number of investors are including futures-based commodity index funds in their portfolios. The argument is that these funds increase diversification, enhance returns and serve as an inflation hedge. Much of the recent literature served to reinforce these ideas. We update the literature by examining recent data on returns and volatility. We further extend the literature by comparing the efficient frontiers of globally diversified stock and bond portfolios with and without the inclusion of futures index funds. We find little difference between the portfolios. Additionally, the returns from such funds do not appear significantly different than zero. They also lag the returns on spot commodities which have lagged inflation over the long haul.

Suggested Citation

  • Bolong Cao & Shamila Jayasuriya & William Shambora, 2010. "Holding a commodity futures index fund in a globally diversified portfolio: A placebo effect?," Economics Bulletin, AccessEcon, vol. 30(3), pages 1842-1851.
    • Handle: RePEc:ebl:ecbull:eb-10-00376
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    References listed on IDEAS

    as
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    3. Ian Garrett & Nick Taylor, 2001. "Portfolio diversification and excess comovement in commodity prices," Manchester School, University of Manchester, vol. 69(4), pages 351-368, September.
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    5. Silvennoinen, Annastiina & Thorp, Susan, 2013. "Financialization, crisis and commodity correlation dynamics," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 42-65.
    6. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 25(2), pages 65-86.
    7. Geetesh Bhardwaj & Gary B. Gorton & K. Geert Rouwenhorst, 2008. "Fooling Some of the People All of the Time: The Inefficient Performance and Persistence of Commodity Trading Advisors," NBER Working Papers 14424, National Bureau of Economic Research, Inc.
    8. repec:bla:manchs:v:69:y:2001:i:4:p:351-68 is not listed on IDEAS
    9. Merton, Robert C., 1972. "An Analytic Derivation of the Efficient Portfolio Frontier," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(4), pages 1851-1872, September.
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    11. Geetesh Bhardwaj & Gary B. Gorton & K. Geert Rouwenhorst, 2008. "Fooling Some of the People All of the Time: The Inefficient Performance and Persistence of Commodity Trading Advisors," NBER Working Papers 14424, National Bureau of Economic Research, Inc.
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    Cited by:

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    2. Daskalaki, Charoula & Skiadopoulos, George & Topaloglou, Nikolas, 2017. "Diversification benefits of commodities: A stochastic dominance efficiency approach," Journal of Empirical Finance, Elsevier, vol. 44(C), pages 250-269.
    3. Bessler, Wolfgang & Wolff, Dominik, 2015. "Do commodities add value in multi-asset portfolios? An out-of-sample analysis for different investment strategies," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 1-20.
    4. Ruano, Fábio & Barros, Victor, 2022. "Commodities and portfolio diversification: Myth or fact?," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 281-295.
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    6. Belousova, Julia & Dorfleitner, Gregor, 2012. "On the diversification benefits of commodities from the perspective of euro investors," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2455-2472.
    7. Theu Dinh & Stéphane Goutte & Duc Khuong Nguyen & Nikolas Topaloglou, 2023. "Diversification benefits of precious metal markets," Working Papers halshs-04057273, HAL.

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    More about this item

    Keywords

    Commodity futures index fund; stationary bootstrap; efficient portfolio frontier;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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