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Commodities for the Long Run

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  • Ari Levine
  • Yao Hua Ooi
  • Matthew Richardson

Abstract

This paper analyzes a novel data set of commodity futures prices over a long sample period starting in 1877, which allows us to shed new light on several important and controversial questions. We document that commodity futures returns (1) have been positive on average; (2) vary significantly across business cycles, inflation episodes, and periods of backwardation versus contango, (3) are driven mostly by variation of spot returns and therefore closely linked to the underlying commodity spot market; (4) perform well during inflation cycles and provide more return in backwardated states; and (5) display low correlation with stocks and bonds. These long-run stylized facts imply that commodity futures can add value to a diversified portfolio from an asset allocation perspective.

Suggested Citation

  • Ari Levine & Yao Hua Ooi & Matthew Richardson, 2016. "Commodities for the Long Run," NBER Working Papers 22793, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22793
    Note: AP
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    References listed on IDEAS

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    Cited by:

    1. Yan, Lei & Garcia, Philip, 2017. "Portfolio investment: Are commodities useful?," Journal of Commodity Markets, Elsevier, vol. 8(C), pages 43-55.

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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • N2 - Economic History - - Financial Markets and Institutions
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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