Facts and Fantasies About Commodity Futures Ten Years Later

31 Pages Posted: 27 May 2015  

Geetesh Bhardwaj

SummerHaven Investment Management

Gary B. Gorton

Yale School of Management; National Bureau of Economic Research (NBER)

K. Geert Rouwenhorst

Yale School of Management - International Center for Finance

Multiple version iconThere are 2 versions of this paper

Date Written: May 25, 2015

Abstract

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

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

Geetesh Bhardwaj

SummerHaven Investment Management ( email )

Soundview Plaza,
1266 East Main Street
Stamford, CT 06902
United States

Gary B. Gorton

Yale School of Management ( email )

165 Whitney Ave
P.O. Box 208200
New haven, CT 06511
United States

HOME PAGE: http://mba.yale.edu/faculty/profiles/gorton.shtml

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

K. Geert Rouwenhorst (Contact Author)

Yale School of Management - International Center for Finance ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6046 (Phone)
203-432-8931 (Fax)

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