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Strategic asset allocation and intertemporal demands: with commodities as an asset class


  • Su, Yongyang
  • Lau, Marco Chi Keung


This paper analyzes the role of commodities in the process of strategic asset allocation, with an attempt of computing the weight of commodities relative to traditional assets in a multi-period portfolio choice problem and understanding the economic interpretations to its importance. We find U.S. investors have a significantly stable intertemporal hedging demand for commodities in the long horizons, even when they have access to foreign equity markets, for example, foreign stock market. Our results provide support to institutional investors attempting to include commodities into their strategic asset allocation decision.

Suggested Citation

  • Su, Yongyang & Lau, Marco Chi Keung, 2010. "Strategic asset allocation and intertemporal demands: with commodities as an asset class," MPRA Paper 26337, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:26337

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    References listed on IDEAS

    1. Campbell, John Y. & Chan, Yeung Lewis & Viceira, Luis M., 2003. "A multivariate model of strategic asset allocation," Journal of Financial Economics, Elsevier, vol. 67(1), pages 41-80, January.
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    4. Brennan, Michael J. & Schwartz, Eduardo S. & Lagnado, Ronald, 1997. "Strategic asset allocation," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1377-1403, June.
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    6. Barron, John M. & Ni, Jinlan, 2008. "Endogenous asymmetric information and international equity home bias: The effects of portfolio size and information costs," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 617-635, June.
    7. Stambaugh, Robert F., 1999. "Predictive regressions," Journal of Financial Economics, Elsevier, vol. 54(3), pages 375-421, December.
    8. Gary Gorton & K. Geert Rouwenhorst, 2004. "Facts and Fantasies about Commodity Futures," NBER Working Papers 10595, National Bureau of Economic Research, Inc.
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    10. Bhamra, Harjoat S. & Uppal, Raman, 2006. "The role of risk aversion and intertemporal substitution in dynamic consumption-portfolio choice with recursive utility," Journal of Economic Dynamics and Control, Elsevier, vol. 30(6), pages 967-991, June.
    11. Norman Strong & Xinzhong Xu, 2003. "Understanding the Equity Home Bias: Evidence from Survey Data," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 307-312, May.
    12. Lynch, Anthony W., 2001. "Portfolio choice and equity characteristics: characterizing the hedging demands induced by return predictability," Journal of Financial Economics, Elsevier, vol. 62(1), pages 67-130, October.
    13. Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, number 9780198296942.
    14. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-257, August.
    15. Nicholas Barberis, 2000. "Investing for the Long Run when Returns Are Predictable," Journal of Finance, American Finance Association, vol. 55(1), pages 225-264, February.
    16. Cooper, Ian & Kaplanis, Evi, 1994. "Home Bias in Equity Portfolios, Inflation Hedging, and International Capital Market Equilibrium," Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 45-60.
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    More about this item


    strategic asset allocation; portfolio choice; hedging demand; commodities; commodity futures;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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