Facts and Fantasies about Commodity Futures
Gary B. Gorton
Yale School of Management; National Bureau of Economic Research (NBER)
K. Geert Rouwenhorst
Yale School of Management - International Center for Finance
February 28, 2005
Yale ICF Working Paper No. 04-20
We construct an equally-weighted index of commodity futures monthly returns over the period between July of 1959 and December of 2004 in order to study simple properties of commodity futures as an asset class. Fully-collateralized commodity futures have historically offered the same return and Sharpe ratio as equities. While the risk premium on commodity futures is essentially the same as equities, commodity futures returns are negatively correlated with equity returns and bond returns. The negative correlation between commodity futures and the other asset classes is due, in significant part, to different behavior over the business cycle. In addition, commodity futures are positively correlated with inflation, unexpected inflation, and changes in expected inflation.
Number of Pages in PDF File: 41
JEL Classification: G2, G15, N2
Date posted: June 29, 2004
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