Benchmarking Commodity Investments

Journal of Futures Markets, Forthcoming

44 Pages Posted: 9 Mar 2016 Last revised: 11 Sep 2017

See all articles by Jesse Blocher

Jesse Blocher

Vanderbilt University - Finance

Ricky Cooper

Illinois Institute of Technology - Stuart School of Business, IIT

Marat Molyboga

Efficient Capital Management, LLC

Date Written: June 15, 2017

Abstract

While much is known about the financialization of commodities, less is known about how to profitably invest in commodities. We develop a four-factor asset pricing model of commodity returns. Our four-factor model prices both commodity spot and term risk premia in an intuitive manner related to investable portfolios. The straightforward construction of our factors is an improvement over previous models. Furthermore, our four-factor model prices commodity risk premia using both sorted portfolios and risk adjusted alphas as benchmarks. Thus, we feel it is an appropriate benchmark to evaluate commodity investment vehicles.

Keywords: commodity investments, risk premia, smart beta, exchange traded funds

JEL Classification: G12, G13, G23

Suggested Citation

Blocher, Jesse and Cooper, Ricky and Molyboga, Marat, Benchmarking Commodity Investments (June 15, 2017). Journal of Futures Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2744766 or http://dx.doi.org/10.2139/ssrn.2744766

Jesse Blocher (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

Ricky Cooper

Illinois Institute of Technology - Stuart School of Business, IIT ( email )

10 West 35th Street, 18th Floor
Chicago, IL 60616
United States

Marat Molyboga

Efficient Capital Management, LLC ( email )

4355 Weaver Parkway
Warrenville, IL 60555
United States
6306576842 (Phone)

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