Commodities for the Long Run

37 Pages Posted: 21 Oct 2016 Last revised: 18 May 2017

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)

Caroline Sasseville

AQR Capital Management, LLC

Multiple version iconThere are 2 versions of this paper

Date Written: October 20, 2016

Abstract

Using a novel dataset consisting of daily futures prices going as far back as 1877, we find that returns of commodity futures indices have on average been positive over the long run. Though return premia are associated with both carry and spot returns, commodity returns in different economic states (inflation up/down, expansion/recession) vary mostly due to moves in the underlying spot price. These economic states are important drivers of commodity returns, even after conditioning on whether commodity markets are in backwardation or contango. The evidence supports commodities as a potentially attractive asset class to include in investors’ portfolios of stocks and bonds.

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

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

Suggested Citation

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

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

Caroline Sasseville

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

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