Comparing First, Second and Third Generation Commodity Indices

22 Pages Posted: 21 Aug 2012

See all articles by Joëlle Miffre

Joëlle Miffre

Audencia Nantes School of Management; Audencia Business School

Date Written: July 31, 2012

Abstract

The rising interest of institutional investors for commodities since the early 2000s prompted remarkable financial engineering in the commodity index space which is now in its third generation. The purpose of this article is to review this evolution and to give an assessment of index performance. Long-only second generation indices, which attempt to minimize the harmful impact of contango on performance and use active long-only signals based on momentum or roll-yields, are found to outperform their first generation counterparts. Third generation indices fare even better as they accurately buy backwardated assets and short contangoed ones, thereby reducing overall volatility. We see these indices as serious contenders to commodity trading advisors that merely replicate strategies based on momentum or term structure.

Keywords: Commodity indices, Backwardation, Contango, Long, Short

JEL Classification: G13, G14

Suggested Citation

Miffre, Joelle, Comparing First, Second and Third Generation Commodity Indices (July 31, 2012). Available at SSRN: https://ssrn.com/abstract=2132949 or http://dx.doi.org/10.2139/ssrn.2132949

Joelle Miffre (Contact Author)

Audencia Nantes School of Management ( email )

8 route de la Jonelière, BP 31222
Nantes Cedex 3, Cedex 3 44312
France

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

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