Commodities for the Long Run

Ari Levine, Yao Hua Ooi and Matthew Richardson

No 22793, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes a novel data set of commodity futures prices over a long sample period starting in 1877, which allows us to shed new light on several important and controversial questions. We document that commodity futures returns (1) have been positive on average; (2) vary significantly across business cycles, inflation episodes, and periods of backwardation versus contango, (3) are driven mostly by variation of spot returns and therefore closely linked to the underlying commodity spot market; (4) perform well during inflation cycles and provide more return in backwardated states; and (5) display low correlation with stocks and bonds. These long-run stylized facts imply that commodity futures can add value to a diversified portfolio from an asset allocation perspective.

JEL-codes: G10 G11 G13 N2 N21 N22 (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-his
Note: AP
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Published as Ari Levine & Yao Hua Ooi & Matthew Richardson & Caroline Sasseville, 2018. "Commodities for the Long Run," Financial Analysts Journal, vol 74(2), pages 55-68.

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