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Should investors include commodities in their portfolios after all? New evidence

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  • Daskalaki, Charoula
  • Skiadopoulos, George

Abstract

This paper investigates whether an investor is made better off by including commodities in a portfolio that consists of traditional asset classes. First, we revisit the posed question within an in-sample setting by employing mean-variance and non-mean-variance spanning tests. Then, we form optimal portfolios by taking into account the higher order moments of the portfolio returns distribution and evaluate their out-of-sample performance. Under the in-sample setting, we find that commodities are beneficial only to non-mean-variance investors. However, these benefits are not preserved out-of-sample. Our findings challenge the alleged diversification benefits of commodities and are robust across a number of performance evaluation measures, utility functions and datasets. The results hold even when transaction costs are considered and across various sub-periods. Not surprisingly, the only exception appears over the 2005-2008 unprecedented commodity boom period.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 10 (October)
Pages: 2606-2626

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Handle: RePEc:eee:jbfina:v:35:y:2011:i:10:p:2606-2626

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Asset allocation Commodity boom Commodity futures Commodity indexes Spanning Performance evaluation;

References

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