Abstract

https://ssrn.com/abstract=2856435
 


 



Commodities for the Long Run


Ari Levine


AQR Capital Management

Yao Hua Ooi


AQR Capital Management, LLC

Matthew P. Richardson


New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

October 20, 2016


Abstract:     
This paper analyzes a novel data set of commodity futures prices over a long sample period starting in 1877, which allows us to shed new light on several important and controversial questions. We document that commodity futures returns:

(1) have been positive on average;

(2) vary significantly across business cycles, inflation episodes, and periods of backwardation versus contango,

(3) are driven mostly by variation of spot returns and therefore closely linked to the underlying commodity spot market;

(4) perform well during inflation cycles and provide more return in backwardated states; and

(5) display low correlation with stocks and bonds.

These long-run stylized facts imply that commodity futures can add value to a diversified portfolio from an asset allocation perspective.

Number of Pages in PDF File: 39

Keywords: Commodities, Spot Returns, Convenience Yields, Carry, Business Cycle, Inflation, Backwardation, Asset Allocation

JEL Classification: G11, G13, E30, N21, N22, Q02


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Date posted: October 21, 2016 ; Last revised: October 28, 2016

Suggested Citation

Levine, Ari and Ooi, Yao Hua and Richardson, Matthew P., Commodities for the Long Run (October 20, 2016). Available at SSRN: https://ssrn.com/abstract=2856435

Contact Information

Ari Levine
AQR Capital Management ( email )
Greenwich, CT
United States
2037423851 (Phone)

Yao Hua Ooi
AQR Capital Management, LLC ( email )
Greenwich, CT
United States

Matthew P. Richardson (Contact Author)
New York University (NYU) - Department of Finance ( email )
44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States
212-998-0349 (Phone)
212-995-4233 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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