Strategic and Tactical Roles of Enhanced-Commodity Indices

Rallis, Georgios; Miffre, Joëlle; Fuertes, Ana-Maria

doi:10.2139/ssrn.1648816

Strategic and Tactical Roles of Enhanced-Commodity Indices

Journal of Futures Markets 33(10), 965-992

38 Pages Posted: 27 Jul 2010 Last revised: 19 Dec 2013

See all articles by Georgios Rallis

Georgios Rallis

City University of London - Sir John Cass Business School

Joëlle Miffre

Audencia Nantes School of Management; Audencia Business School

Ana-Maria Fuertes

Cass Business School, City University of London

Date Written: February 1, 2012

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.

Keywords: Long-only commodity indices, Time-to-maturity, Momentum, Term structure

JEL Classification: G13, G14

Suggested Citation: Suggested Citation

Rallis, Georgios and Miffre, Joelle and Fuertes, Ana-Maria, Strategic and Tactical Roles of Enhanced-Commodity Indices (February 1, 2012). Journal of Futures Markets 33(10), 965-992 . Available at SSRN: https://ssrn.com/abstract=1648816 or http://dx.doi.org/10.2139/ssrn.1648816