Are Commodity Futures a Good Hedge Against Inflation?

38 Pages Posted: 24 Dec 2010 Last revised: 4 May 2013

See all articles by Laura Spierdijk

Laura Spierdijk

University of Groningen

Zaghum Umar

Zayed University - College of Business; Netspar

Date Written: April 25, 2013


This study assesses the hedging properties of commodity futures across three dimensions: market, investment horizon and time. Measured over the full sample period (1970-2011), commodity futures show significant ability to hedge US inflation, especially for investment horizons of at least one year. Particularly commodity futures in the markets energy, industrial metals, and live cattle have favorable hedging properties. However, the hedging capacity exhibits substantial variation over time. It has been increasing since the early 1980s and reaches an historical high towards the end of the sample period. Although we establish significant hedging ability for commodity futures indices, we observe a trade-off between the reduction in real return portfolio variance realized by adding commodity futures indices to the portfolio and the expected real portfolio return.

Keywords: Inflation hedging, costs of hedging, commodity futures, investment horizon

JEL Classification: G11, G15, E44

Suggested Citation

Spierdijk, Laura and Umar, Zaghum, Are Commodity Futures a Good Hedge Against Inflation? (April 25, 2013). Netspar Discussion Paper No. 11/2010-078, Available at SSRN: or

Laura Spierdijk (Contact Author)

University of Groningen ( email )

PO Box 800
Groningen, 9700 AV

Zaghum Umar

Zayed University - College of Business ( email )

P.O. Box 4783
Abu Dhabi
United Arab Emirates

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE

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