Can Commodities Dominate Stock and Bond Portfolios?
Henriksen, T.E.S., Pichler, A., Westgaard, S. et al. Can commodities dominate stock and bond portfolios?. Ann Oper Res 282, 155–177 (2019). Doi.org/10.1007/s10479-018-2996-7
Posted: 24 Nov 2019 Last revised: 14 Feb 2020
Date Written: May 12, 2017
In this article we discuss whether commodities should be included as an asset class when establishing portfolios. By investigating second order stochastic dominance relations, we find that the stock and bond indices tend to dominate the individual commodities. We further study if we can find a combination of stocks, bonds and commodities that dominate others. Compared to a 60% stock and 40% bond portfolio mix, portfolios consisting of long positions in gold futures and two different actively managed indices are the only commodity investments to be included as long positions in a stock/bond portfolio. The results should be of interest for fund managers and traders that seek to improve their risk-return trade off compared to the traditional 60/40 portfolio.
Keywords: Commodities, Stochastic Dominance, Asset Allocation
JEL Classification: G11
Suggested Citation: Suggested Citation