The Role of Commodities in Strategic Asset Allocation
53 Pages Posted: 10 Aug 2014 Last revised: 5 Jan 2015
Date Written: December 23, 2014
Abstract
We shed new light on the role of commodities in asset allocation for investors with and without liabilities who (a) believe that asset returns are time varying and predictable (b) have short and long term horizons and (c) have access, in addition to a standard passive commodity portfolio, to commodity portfolios based on equal weights, momentum and the basis. We document significant benefits, in- and out-of-sample, from investing in factor-based commodity portfolios. We also confirm and extend the evidence on the negative role of commodity investments based on commonly used commodity benchmarks for investors with long horizons and liabilities.
Keywords: Strategic Asset Allocation; Dynamic Asset Allocation; Asset Management; Asset-Liability Management; Commodities; Factor Premia; Momentum; Basis
JEL Classification: G10, G11, G12, G23
Suggested Citation: Suggested Citation