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The strategic allocation to style-integrated portfolios of commodity futures

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  • Rad, Hossein
  • Low, Rand Kwong Yew
  • Miffre, Joëlle
  • Faff, Robert

Abstract

Our study lies at the intersection of the literature on the diversification benefits of commodity futures and the literature on style integration. It augments the traditional asset mix of investors with a long–short portfolio that integrates the styles that matter to the pricing of commodity futures. Treating the style-integrated portfolio of commodities as part of the strategic mix of investors is found to enhance out-of-sample performance and reduce crash risk compared to the alternatives considered thus far. The conclusion holds across traditional asset mix, portfolio allocation methods, integration strategies, and sub-periods. The diversification benefits of style integration also persist, albeit lower, in a long-only setting.

Suggested Citation

  • Rad, Hossein & Low, Rand Kwong Yew & Miffre, Joëlle & Faff, Robert, 2022. "The strategic allocation to style-integrated portfolios of commodity futures," Journal of Commodity Markets, Elsevier, vol. 28(C).
    • Handle: RePEc:eee:jocoma:v:28:y:2022:i:c:s2405851322000174
    DOI: 10.1016/j.jcomm.2022.100259
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    More about this item

    Keywords

    Commodity futures; Style integration; Strategic asset allocation; Diversification;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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