Benchmarking Commodity Investments
Journal of Futures Markets, Forthcoming
44 Pages Posted: 9 Mar 2016 Last revised: 11 Sep 2017
Date Written: June 15, 2017
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: Suggested Citation