What Every Investor Should Know About Commodities, Part I

Journal of Investment Management, Vol. 5, No. 1, First Quarter 2007

Posted: 28 Mar 2007

See all articles by Harry M. Kat

Harry M. Kat

Independent

Roel C. A. Oomen

Deutsche Bank AG (London); London School of Economics & Political Science (LSE) - Department of Statistics

Abstract

In this paper we study the univariate return properties of a large variety of commodity futures. Our analysis shows that the volatility of commodity futures is comparable to that of US large cap stocks. Yet, with the exception of energy, a consistently positive risk premium is lacking in commodity futures. We also find that for many commodities, futures returns and volatility can vary considerably over different phases of the business cycle, under different monetary conditions as well as with the shape of the futures curve. Skewness in commodity futures returns is largely insignificant, whereas kurtosis is significantly positive and comparable to that of US large cap stocks. In almost all commodities we find significant degrees of autocorrelation, which affects the properties of longer horizon returns.

Keywords: Commodities, commodity futures, risk premium, volatility, skewness, kurtosis, autocorrelation

Suggested Citation

Kat, Harry M. and Oomen, Roel C.A., What Every Investor Should Know About Commodities, Part I. Journal of Investment Management, Vol. 5, No. 1, First Quarter 2007. Available at SSRN: https://ssrn.com/abstract=972165

Harry M. Kat (Contact Author)

Independent

No Address Available

Roel C.A. Oomen

Deutsche Bank AG (London) ( email )

Winchester House
1 Great Winchester Street
London, EC2N 2DB
United Kingdom

London School of Economics & Political Science (LSE) - Department of Statistics ( email )

Houghton Street
London, England WC2A 2AE
United Kingdom

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