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

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  • Belousova, Julia
  • Dorfleitner, Gregor
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    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.

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    Bibliographic Info

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

    Volume (Year): 36 (2012)
    Issue (Month): 9 ()
    Pages: 2455-2472

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:9:p:2455-2472

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

    Related research

    Keywords: Commodities; Asset allocation; Diversification; Spanning test; Step-down procedure;

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    References

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    Cited by:
    1. Amélie Charles & Olivier Darné & Jae H. Kim, 2014. "Precious metals shine? A market efficiency perspective," Working Papers hal-01010516, HAL.
    2. Agyei-Ampomah, Sam & Gounopoulos, Dimitrios & Mazouz, Khelifa, 2014. "Does gold offer a better protection against losses in sovereign debt bonds than other metals?," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 507-521.

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