Commodity Investing Risks
30 Pages Posted: 5 Aug 2015
Date Written: May 5, 2003
This paper will cover investing in commodities through futures contracts. It will note the unique sources of risk and return for such investments. We will also discuss the factors that one should take into consideration before deciding upon how much of their portfolio should be in commodities. We will note how an investment in commodities can be used as either a diversifier for a traditional portfolio or as a source of returns, depending on the market environment. Finally, we will argue that some of the considerations that apply to equity investing are also relevant for commodity investing.
Keywords: Commodity futures contracts, risks, source of returns, backwardation
JEL Classification: G1, G11
Suggested Citation: Suggested Citation