Do commodities add value in multi-asset portfolios? An out-of-sample analysis for different investment strategies

Wolfgang Bessler and Dominik Wolff

Journal of Banking & Finance, 2015, vol. 60, issue C, 1-20

Abstract: An essential motive for investing in commodities is to enhance the performance of portfolios traditionally including only stocks and bonds. We analyze the in-sample and out-of-sample portfolio effects resulting from adding commodities to a stock-bond portfolio for commonly implemented asset allocation strategies such as equally- and strategically-weighted portfolios, risk-parity, minimum-variance as well as reward-to-risk timing, mean-variance and Black–Litterman. We analyze different commodity groups such as agricultural and livestock commodities that currently are critically discussed. The out-of-sample portfolio analysis indicates that the attainable benefits of commodities are much smaller than suggested by previous in-sample studies. Hence, in-sample analyses, such as spanning tests, might exaggerate the advantages of commodities. Moreover, the portfolio gains greatly vary between different types of commodities and sub-periods. While aggregate commodity indices, industrial and precious metals as well as energy improve the performance of a stock-bond portfolio for most asset allocation strategies, we hardly find positive portfolio effects for agriculture and livestock. Consequently, investments in food commodities are not essential for efficient asset allocation.

Keywords: Commodities; Asset allocation models; Out-of-sample portfolio optimization; Diversification; Performance evaluation (search for similar items in EconPapers)
JEL-codes: C61 G10 G11 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (77)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:60:y:2015:i:c:p:1-20

DOI: 10.1016/j.jbankfin.2015.06.021

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