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Holding a commodity futures index fund in a globally diversified portfolio: A placebo effect?

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Author Info

  • Bolong Cao

    ()
    (Ohio University)

  • Shamila Jayasuriya

    ()
    (Ohio University)

  • William Shambora

    ()
    (Ohio University)

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    Abstract

    An increasing number of investors are including futures-based commodity index funds in their portfolios. The argument is that these funds increase diversification, enhance returns and serve as an inflation hedge. Much of the recent literature served to reinforce these ideas. We update the literature by examining recent data on returns and volatility. We further extend the literature by comparing the efficient frontiers of globally diversified stock and bond portfolios with and without the inclusion of futures index funds. We find little difference between the portfolios. Additionally, the returns from such funds do not appear significantly different than zero. They also lag the returns on spot commodities which have lagged inflation over the long haul.

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    File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I3-P168.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 30 (2010)
    Issue (Month): 3 ()
    Pages: 1842-1851

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    Handle: RePEc:ebl:ecbull:eb-10-00376

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    Related research

    Keywords: Commodity futures index fund; stationary bootstrap; efficient portfolio frontier;

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    1. Gary B. Gorton & Fumio Hayashi & K. Geert Rouwenhorst, 2013. "The Fundamentals of Commodity Futures Returns," Review of Finance, European Finance Association, vol. 17(1), pages 35-105.
    2. Silvennoinen, Annastiina & Thorp, Susan, 2013. "Financialization, crisis and commodity correlation dynamics," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 42-65.
    3. Ke Tang & Wei Xiong, 2010. "Index Investment and Financialization of Commodities," NBER Working Papers 16385, National Bureau of Economic Research, Inc.
    4. Geetesh Bhardwaj & Gary Gorton & K. Rouwenhorst, 2008. "Fooling Some of the People All of the Time: The Inefficient Performance and Persistence of Commodity Trading Advisors," Yale School of Management Working Papers amz2429, Yale School of Management.
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    Cited by:
    1. Belousova, Julia & Dorfleitner, Gregor, 2012. "On the diversification benefits of commodities from the perspective of euro investors," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2455-2472.

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