 A Bayesian perspective on commodity style integrationAna-Maria Fuertes and Nan Zhao Journal of Commodity Markets, 2023, vol. 30, issue C Abstract: Commodity style integration is appealing because by forming a unique long-short portfolio with exposure to K mildly correlated factors, a larger and more stable risk premium can be extracted than with any of the standalone styles. A key decision that a commodity style-integration investor faces at each rebalancing time is the relative weighting of the factors. We propose a Bayesian optimized style-integration (BOI) strategy with excellent out-of-sample performance. Focusing on the problem of a commodity investor that seeks exposure to the carry, hedging pressure, momentum, skewness, and basis-momentum factors, the evidence suggests that the BOI portfolio achieves better Sharpe ratios and certainty equivalent returns, among other performance metrics, than the 1/K style-weighted integrated portfolio, and a battery of sophisticated optimized integrations. The findings survive the consideration of longer estimation windows, various commodity score schemes, and alternative Bayesian priors. Keywords: Commodity risk premia; Style integration; Long-short portfolio; Parameter estimation risk; Bayesian portfolio optimization (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:jocoma:v:30:y:2023:i:c:s2405851323000181 DOI: 10.1016/j.jcomm.2023.100328 Access Statistics for this article Journal of Commodity Markets is currently edited by Marcel Prokopczuk, Betty Simkins and Sjur Westgaard More articles in Journal of Commodity Markets from Elsevier |
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