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Benchmarking commodity investments

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  • Jesse Blocher
  • Ricky Cooper
  • Marat Molyboga

Abstract

While much is known about the financialization of commodities, less is known about how to profitably invest in commodities. We develop a four‐factor asset pricing model of commodity returns. Our four‐factor model prices both commodity spot and term risk premia in an intuitive manner related to investable portfolios. The straightforward construction of our factors is an improvement over previous models. Furthermore, our four‐factor model prices commodity risk premia using both sorted portfolios and risk adjusted alphas as benchmarks. Thus, we feel it is an appropriate benchmark to evaluate commodity investment vehicles.

Suggested Citation

  • Jesse Blocher & Ricky Cooper & Marat Molyboga, 2018. "Benchmarking commodity investments," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(3), pages 340-358, March.
    • Handle: RePEc:wly:jfutmk:v:38:y:2018:i:3:p:340-358
    DOI: 10.1002/fut.21885
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    References listed on IDEAS

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    Cited by:

    1. He, Chaohua & Jiang, Cheng & Molyboga, Marat, 2019. "Risk premia in Chinese commodity markets," Journal of Commodity Markets, Elsevier, vol. 15(C), pages 1-1.
    2. Bannigidadmath, Deepa & Narayan, Paresh Kumar, 2022. "Economic importance of correlations for energy and other commodities," Energy Economics, Elsevier, vol. 107(C).
    3. Zhang, Xuan & Xiao, Jun & Zhang, Zhekai, 2020. "An anatomy of commodity futures returns in China," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).

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