An efficient frontier for international portfolios with commodity assets
AbstractIn recent years, the role of investment funds has increased in most commodity markets. Investment funds, which traditionally deal with financial markets, have been shifting between financial markets and commodity futures markets, as well as among commodity futures markets. The popularity of investing in emerging capital markets is as high as it has been since World War I. By 1913, nearly half of a typical equity portfolio was invested in emerging markets. Today, one in every four dollars invested in foreign equity markets goes to emerging markets. Both commodity futures and emerging capital markets are growing in popularity because they allow risk reductionthrough portfolio diversification. The authors analyze the benefits of including commodity futures and assets from emerging markets in an investment portfolio. They also try to calculate the optimal composition of assets. The calculated optimal weights show that a considerable proportion of an investment portfolio could be invested in commodity futures and emerging market assets. The weights calculated are higher than those funds usually used, signifying the potential for futher expansion of these assets in a portfolio. Finally, including commodity futures and assets from emerging markets in investment portfolios produces a significant risk/return benefit.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 1266.
Date of creation: 31 Mar 1994
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Economic Theory&Research; International Terrorism&Counterterrorism; Insurance Law; Financial Intermediation; Markets and Market Access;
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- Al Janabi, Mazin A.M., 2012. "Optimal commodity asset allocation with a coherent market risk modeling," Review of Financial Economics, Elsevier, vol. 21(3), pages 131-140.
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