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

See all articles by Stein Frydenberg

Stein Frydenberg

NTNU Business School - Norwegian University of Science and Technology (NTNU)

Tom Erik Henriksen

NMBU School of Economics and Business

Sjur Westgaard

Norwegian University of Science and Technology (NTNU) - Department of Industrial Economics and Technology

Alois Pichler

affiliation not provided to SSRN

Date Written: May 12, 2017

Abstract

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

Frydenberg, Stein and Henriksen, Tom Erik and Westgaard, Sjur and Pichler, Alois, Can Commodities Dominate Stock and Bond Portfolios? (May 12, 2017). 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, Available at SSRN: https://ssrn.com/abstract=3485798

Stein Frydenberg (Contact Author)

NTNU Business School - Norwegian University of Science and Technology (NTNU) ( email )

Klaebuveien 72
Trondheim NO-7491, 7491
Norway

HOME PAGE: http://https://www.ntnu.no/ansatte/stein.frydenberg

Tom Erik Henriksen

NMBU School of Economics and Business ( email )

PO Box 5003
1432 Ås
Norway

Sjur Westgaard

Norwegian University of Science and Technology (NTNU) - Department of Industrial Economics and Technology ( email )

NO-7491 Trondheim
Norway

Alois Pichler

affiliation not provided to SSRN

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