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On the diversification benefits of commodities from the perspective of euro investors

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  • Belousova, Julia
  • Dorfleitner, Gregor

Abstract

This paper investigates the diversification contribution of several commodities to a portfolio of traditional assets from the perspective of a euro investor. The approach applied in our analysis has high informational content as it differentiates between the sources of the diversification benefits in a statistically significant way. The results indicate that the diversification contribution varies greatly amongst the different commodities. Industrial metals, agriculturals and livestock contribute to the reduction of risk, while energy and precious metals contribute to both the reduction of the level of risk and to the improvement of return. The differentiation between bull and bear markets reveals that investors can enhance the portfolio performance by changing exposure into individual commodities. Investors can benefit from the diversification gains through financial instruments as the diversification gains hold both in the sample of physical commodity and commodity futures. Overall, the results confirm that commodities are valuable investments from the perspective of diversification.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:jbfina:v:36:y:2012:i:9:p:2455-2472
    DOI: 10.1016/j.jbankfin.2012.05.003
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    References listed on IDEAS

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    More about this item

    Keywords

    Commodities; Asset allocation; Diversification; Spanning test; Step-down procedure;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General

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