Strategic and Tactical Roles of Enhanced-Commodity Indices
City University of London - Sir John Cass Business School
EDHEC Business School
Cass Business School, City University London
February 1, 2012
Forthcoming, Journal of Futures Markets
This article formally compares two traditional long-only commodity indices, S&P-GSCI and DJ-UBSCI, with their enhanced versions that exploit signals based on contract maturity, momentum and term structure. The enhanced indices are found to be useful for tactical asset allocation. With alphas ranging from 2.77% to 5.49% per annum, the maturity-enhanced indices offer the best abnormal performance after accounting for liquidity risk. Momentum and term structure enhancements also earn a positive, albeit smaller, alpha of 1.97% per annum on average. All the enhanced indices are found to be as effective tools for risk diversification and inflation hedging as their traditional counterparts, making them useful for strategic asset allocation.
Number of Pages in PDF File: 38
Keywords: Long-only commodity indices, Time-to-maturity, Momentum, Term structure
JEL Classification: G13, G14working papers series
Date posted: July 27, 2010 ; Last revised: May 1, 2012
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