Benefits and Consequences of Diversification: Evidence from Financialzed Commodity Portfolios
Rangga Handika and
Additional contact information
Rangga Handika: Institute for International Strategy, Tokyo International University, Japan
Mahjus Ekananda: Department of Economics, Faculty of Economics and Business, University of Indonesia, Indonesia.
Asian Business Research Journal, 2019, vol. 4, issue 1, 17-28
The financial risk analysis of commodity markets has become an increasingly important issue in the recent decade. However, studies about commodities portfolio diversification benefits are limited. An analysis of commodities as a portfolio (rather than a single asset) should generate more interest from investors since the portfolio enhances single asset due to diversification benefit. This paper investigates the diversification benefits and consequences of portfolio in financialized commodity markets. Using eight financialized commodities at different data frequencies (daily, weekly and monthly) to construct seven equally weighted portfolios, we calculate portfolios value-at-risk (VaR) and expected shortfall (ES). Then, we perform back testing at 99 percent, 95 percent and 90 percent VaR levels. We find that on average commodities portfolios tend to have less accurate VaR and higher number of returns that are lower than ES. We conclude that even though portfolios have diversification benefits such as reducing risk and capital requirements, there are also unintended consequences.
Keywords: Commodity markets; Portfolio; Diversification; Value-at-risk; Expected shortfall; Back-testing (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ajn:abrjou:2019:p:17-28
Access Statistics for this article
Asian Business Research Journal is currently edited by Sophia
More articles in Asian Business Research Journal from Sophia 244 Fifth Avenue, 2nd Floor, New York, NY 10001.
Bibliographic data for series maintained by Sophia ().