Strategic Commodity Allocation and The Theory of Storage

33 Pages Posted: 16 Sep 2011 Last revised: 12 Apr 2012

Date Written: April 11, 2012


This article examines the benefit of adding commodity futures and/or spot commodities to a portfolio of bonds and equity based on the theory of storage. We find that an investor who optimally considers the information conveyed by the whole-term structure of commodity futures greatly improves his/her strategy. However, this strategy results in extreme calendar spread positions on the term structure of the commodity futures. Additionally, these spread positions on the term structure of futures prices significantly modify the investment in bonds. Indeed, the cost of carrying a commodity is inherently linked to the time-preference motives. A suboptimal strategy that focuses on the short end of the futures curve hardly modifies the investments in the bond and equity markets but does not improve the benefit of the strategy. Our study then argues in favor of an investment in commodity indexes independent of other asset classes.

Keywords: Commodity investment, Commodity portfolio management, Asset Allocation, Commodity risk premium, Theory of storage

JEL Classification: G11

Suggested Citation

Six, Pierre, Strategic Commodity Allocation and The Theory of Storage (April 11, 2012). Available at SSRN: or

Pierre Six (Contact Author)

Neoma Business School ( email )

1, rue du Maréchal Juin - BP 188
Mont Saint Aignan Cedex, Normandy 76825

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