The Role of Commodities in Strategic Asset Allocation

We shed new light on the role of commodities in asset allocation for investors with and without liabilities who (a) believe that asset returns are time varying and predictable (b) have short and long term horizons and (c) have access, in addition to a standard passive commodity portfolio, to commodity portfolios based on equal weights, momentum and the basis. We document significant benefits, in- and out-of-sample, from investing in factor-based commodity portfolios. We also confirm and extend the evidence on the negative role of commodity investments based on commonly used commodity benchmarks for investors with long horizons and liabilities.

Keywords: Strategic Asset Allocation; Dynamic Asset Allocation; Asset Management; Asset-Liability Management; Commodities; Factor Premia; Momentum; Basis

JEL Classification: G10, G11, G12, G23

Suggested Citation: Suggested Citation

Giamouridis, Daniel and Sakkas, Athanasios and Tessaromatis, Nikolaos, The Role of Commodities in Strategic Asset Allocation (December 23, 2014). 27th Australasian Finance and Banking Conference 2014 Paper, Available at SSRN: https://ssrn.com/abstract=2478131 or http://dx.doi.org/10.2139/ssrn.2478131