Commodities for the Long Run

40 Pages Posted: 7 Nov 2016 Last revised: 13 Oct 2022

See all articles by Ari Levine

Ari Levine

AQR Capital Management

Yao Hua Ooi

AQR Capital Management, LLC

Matthew P. Richardson

Department of Finance, Leonard N. Stern School of Business, New York University

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Date Written: November 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.

Suggested Citation

Levine, Ari and Ooi, Yao Hua and Richardson, Matthew P., Commodities for the Long Run (November 2016). NBER Working Paper No. w22793, Available at SSRN: https://ssrn.com/abstract=2865531

Ari Levine (Contact Author)

AQR Capital Management ( email )

Greenwich, CT
United States
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Yao Hua Ooi

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Matthew P. Richardson

Department of Finance, Leonard N. Stern School of Business, New York University ( email )

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Suite 9-190
New York, NY 10012-1126
United States
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