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Strategic and Tactical Roles of Enhanced-Commodity IndicesGeorgios RallisCity University of London - Sir John Cass Business School Joelle MiffreEDHEC Business School Ana-Maria FuertesCass Business School, City University London February 1, 2012 Forthcoming, Journal of Futures Markets Abstract: 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, G14 working papers seriesDate posted: July 27, 2010 ; Last revised: May 1, 2012Suggested CitationContact Information
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