Portfolio Diversification with Commodities in Times of Financialization

International Journal of Finance & Banking Studies, 2015, vol. 4, no. 1, pp. 18-36

19 Pages Posted: 5 Nov 2013 Last revised: 5 Mar 2015

Adam Zaremba

Poznań University of Economics and Business

Date Written: March 4, 2015

Abstract

The study concentrates on the benefits of passive commodity investments in the context of the phenomenon of financialization. The research investigates the implications of increase in the correlation coefficients between equity and commodity investments for investors in financial markets. The paper is composed of several parts. First, the attributes of commodity investments and their benefits in the portfolio optimization are explored. Second, the phenomenon of the financialization is described and the research hypothesis is developed. Next, an empirical analysis is performed. I simulate the mean-variance spanning tests to examine the benefits of commodity investments before and after accounting for the impact of financialization. I proceed separate analysis for pre- and post-financialization period. The empirical research is based on asset classes’ returns and other related variables from years 1991-2012. The performed investigations indicate that the market financialization may have significant implications for commodity investors. Due to increase in correlation coefficients, the inclusion of the commodity futures in the traditional stockbond portfolio appears to be no longer reasonable.

Keywords: commodities, finacialization, mean-variance spanning, strategic asset allocation, alternative investments

JEL Classification: G10, G11, G12, Q02

Suggested Citation

Zaremba, Adam, Portfolio Diversification with Commodities in Times of Financialization (March 4, 2015). International Journal of Finance & Banking Studies, 2015, vol. 4, no. 1, pp. 18-36. Available at SSRN: https://ssrn.com/abstract=2349902 or http://dx.doi.org/10.2139/ssrn.2349902

Adam Zaremba (Contact Author)

Poznań University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875
Poland

HOME PAGE: http://adamzaremba.pl

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