31 Pages Posted: 27 May 2015
Date Written: May 25, 2015
Gorton and Rouwenhorst (2006) examined commodity futures returns over the period July 1959 to December 2004 based on an equally-weighted index. They found that fully collateralized commodity futures had historically offered the same return and Sharpe ratio as U.S. equities, but were negatively correlated with the return on stocks and bonds. Reviewing these results ten years later, we find that our conclusions largely hold up out-of-sample. The in- and out-of-sample average commodity risk premiums are not significantly different, nor is the cross-sectional relationship between average returns and the basis. Correlations among commodities and commodity correlations with other assets experienced a temporary increase during the financial crisis which is in line with historical experience of variation of these correlations over the business cycle.
Keywords: Futures Trading, Contango, Backwardation, Basis, Speculators, Hedgers, Risk Premium, Financialization, Time-varying Correlations
JEL Classification: G2, G13, G15, N2, E44, Q11
Suggested Citation: Suggested Citation
Bhardwaj, Geetesh and Gorton, Gary B. and Rouwenhorst, K. Geert, Facts and Fantasies About Commodity Futures Ten Years Later (May 25, 2015). Available at SSRN: https://ssrn.com/abstract=2610772 or http://dx.doi.org/10.2139/ssrn.2610772