Do Commodities Add Value in Multi-Asset-Portfolios? An Out-of-Sample Analysis for Different Investment Strategies

57 Pages Posted: 26 Apr 2014 Last revised: 20 Nov 2015

See all articles by Wolfgang Bessler

Wolfgang Bessler

Justus-Liebig-University Giessen

Dominik Wolff

Institute for quantitative Capital Market research at Deka Bank (IQ-KAP); Deka Investment GmbH; Frankfurt University of Applied Sciences

Date Written: June 21, 2015

Abstract

An essential motive for investing in commodities is to enhance the performance of portfolios traditionally including only stocks and bonds. We analyze the in-sample and out-of-sample portfolio effects resulting from adding commodities to a stock-bond portfolio for commonly implemented asset-allocation strategies such as equally and strategically weighted portfolios, risk-parity, minimum-variance as well as reward-to-risk timing, mean-variance and Black-Litterman. We analyze different commodity groups such as agricultural and livestock com-modities that currently are critically discussed. The out-of-sample portfolio analysis indicates that the attainable benefits of commodities are much smaller than suggested by previous in-sample studies. Hence, in-sample analyses, such as spanning tests, might exaggerate the ad-vantages of commodities. Moreover, the portfolio gains greatly vary between different types of commodities and sub-periods. While aggregate commodity indices, industrial and precious metals as well as energy improve the performance of a stock-bond portfolio for most asset-allocation strategies, we hardly find positive portfolio effects for agriculture and livestock. Consequently, investments in food commodities are not essential for efficient asset allocation.

Keywords: Commodities, Asset allocation models, Out-of-sample portfolio optimization, Diversification, Performance evaluation

JEL Classification: C61, G10, G11

Suggested Citation

Bessler, Wolfgang and Wolff, Dominik, Do Commodities Add Value in Multi-Asset-Portfolios? An Out-of-Sample Analysis for Different Investment Strategies (June 21, 2015). Journal of Banking and Finance, 60, 1-20, 2015. Available at SSRN: https://ssrn.com/abstract=2429346 or http://dx.doi.org/10.2139/ssrn.2429346

Wolfgang Bessler

Justus-Liebig-University Giessen ( email )

Center for Finance and Banking
Licher Strasse 74
Giessen, D-35394
Germany
49-641-9922460 (Phone)
49-641-9922469 (Fax)

HOME PAGE: http://wiwi.uni-giessen.de/home/Bessler/

Dominik Wolff (Contact Author)

Institute for quantitative Capital Market research at Deka Bank (IQ-KAP) ( email )

Mainzer Landstrasse 16
Frankfurt am Main, 60325
Germany

HOME PAGE: http://www.iq-kap.de/en

Deka Investment GmbH ( email )

Mainzer Landstrasse 16
Frankfurt am Main, 60325
Germany

Frankfurt University of Applied Sciences ( email )

Nibelungenplatz 1
Frankfurt / Main, 60318
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
541
Abstract Views
1,930
rank
49,435
PlumX Metrics