 They're back! Post-financialization diversification benefits of commoditiesMarie-Hélène Gagnon, Guillaume Manseau and Gabriel Power International Review of Financial Analysis, 2020, vol. 71, issue C Abstract: Do alternative assets such as commodities improve portfolio diversification? The empirical evidence is generally positive but mixed, and almost exclusively focuses on U.S. data. Using several distinct commodity indexes over the period 1993–2019, we investigate the case of an investor in Canada, a commodity-currency country where equities are already exposed to commodity beta. We use spanning tests and several out-of-sample performance measures for both risk-averse and disappointment-averse investors. Overall, we find that while the diversification potential of commodities was limited in Canada before and during financialization, the post-financialization period offers new opportunities. The evidence suggests that portfolio performance is significantly improved using some, but not all, commodity indexes. Thus, the choice of a relevant commodity index matters as a vehicle for diversification. Finally, compounding an international component to the sectorial diversification of the portfolio can significantly improve its performance. Keywords: Commodities; Portfolio diversification; Financialization; Spanning; Performance measures (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:71:y:2020:i:c:s1057521920301599 DOI: 10.1016/j.irfa.2020.101515 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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