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A Reappraisal of Investing in Commodity Futures Markets


  • Dwight R. Sanders
  • Scott H. Irwin


Investments into commodity-linked products have grown considerably in recent years. Unlike investments in equities, commodity futures markets produce no earnings; the source of returns is thus unclear. This paper examines returns to static long-only U.S. commodity futures investments over five decades and finds that returns to individual futures markets are zero, and the returns to futures market portfolios depend critically on portfolio weighting schemes. Historical portfolio returns are not statistically different from zero and are driven by price episodes such as that of 1972-1974. In other periods, portfolio returns are zero or negative. Overall, the case for long-only investment in commodities may not be as strong as that implied in some studies (e.g., Gorton and Rouwenhorst, 2006a ). If so, the growth in long-only commodity investments may naturally subside and ease the policy debate regarding speculative position limits. Copyright 2012, Oxford University Press.

Suggested Citation

  • Dwight R. Sanders & Scott H. Irwin, 2012. "A Reappraisal of Investing in Commodity Futures Markets," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(3), pages 515-530.
  • Handle: RePEc:oup:apecpp:v:34:y:2012:i:3:p:515-530

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    References listed on IDEAS

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    Cited by:

    1. Chad E. Hart & Sergio H. Lence & Dermot J. Hayes & Na Jin, 2016. "Price Mean Reversion, Seasonality, and Options Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(3), pages 707-725.
    2. Prehn, Sören & Glauben, Thomas & Loy, Jens-Peter & Pies, Ingo & Will, Matthias Georg, 2013. "Der Einfluss von Long-only-Indexfonds auf die Preisfindung und das Marktergebnis an landwirtschaftlichen Warenterminmärkten
      [The impact of long-only index funds on the price development and the mar
      ," IAMO Discussion Papers 142, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
    3. Prehn, Soren & Glauben, Thomas & Loy, Jens-Peter & Pies, Ingo & Will, Matthias Georg, 2014. "Der Einfluss Von Long-Only-Indexfonds Auf Die Preisbildung Und Das Marktergebnis An Warenterminmärkten," 54th Annual Conference, Goettingen, Germany, September 17-19, 2014 187363, German Association of Agricultural Economists (GEWISOLA).
    4. D'Ecclesia, Rita L. & Magrini, Emiliano & Montalbano, Pierluigi & Triulzi, Umberto, 2014. "Understanding recent oil price dynamics: A novel empirical approach," Energy Economics, Elsevier, vol. 46(S1), pages 11-17.
    5. Etienne, Xiaoli L. & Irwin, Scott H. & Garcia, Philip, 2014. "Bubbles in food commodity markets: Four decades of evidence," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 129-155.

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