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Conquering Misperceptions about Commodity Futures Investing

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  • Claude B. Erb
  • Campbell R. Harvey

Abstract

Long-only commodity futures returns have been very disappointing over the last decade, leading some to wonder whether investing in commodities was a mistake. The poor performance is largely the result of poor “income returns,” a return building block similar to a stock’s dividend yield or a bond’s yield. Three misperceptions have contributed to this disappointment: (1) Commodities are a play on commodity prices, (2) commodity prices provide an inflation hedge, and (3) commodity markets, which are smaller than Facebook’s market capitalization, can absorb abundant capital. Learning from mistakes and conquering misperceptions are key to becoming a better investor.Editor’s note: This article was reviewed and accepted by Executive Editor Stephen J. Brown

Suggested Citation

  • Claude B. Erb & Campbell R. Harvey, 2016. "Conquering Misperceptions about Commodity Futures Investing," Financial Analysts Journal, Taylor & Francis Journals, vol. 72(4), pages 26-35, July.
    • Handle: RePEc:taf:ufajxx:v:72:y:2016:i:4:p:26-35
    DOI: 10.2469/faj.v72.n4.3
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    Cited by:

    1. Main, Scott & Irwin, Scott H. & Sanders, Dwight R. & Smith, Aaron, 2018. "Financialization and the returns to commodity investments," Journal of Commodity Markets, Elsevier, vol. 10(C), pages 22-28.
    2. Evans Rozario & Samuel Holt & James West & Shaun Ng, 2020. "A Decade of Evidence of Trend Following Investing in Cryptocurrencies," Papers 2009.12155, arXiv.org.
    3. Carter, Colin A. & Revoredo-Giha, Cesar, 2023. "Financialization and speculators risk premia in commodity futures markets," International Review of Financial Analysis, Elsevier, vol. 88(C).
    4. Packham, Natalie & Papenbrock, Jochen & Schwendner, Peter & Woebbeking, Fabian, 2018. "Tail-Risk Protection Trading Strategies," IRTG 1792 Discussion Papers 2018-038, Humboldt University of Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series".
    5. Ari Levine & Yao Hua Ooi & Matthew Richardson, 2016. "Commodities for the Long Run," NBER Working Papers 22793, National Bureau of Economic Research, Inc.

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