 Commodities and portfolio diversification: Myth or fact?Fábio Ruano and Victor Barros The Quarterly Review of Economics and Finance, 2022, vol. 86, issue C, 281-295 Abstract: This study investigates whether commodities yield diversification benefits to stock portfolios for loss-averse investors using a sample of 16 individual futures contracts and one index of commodity futures. We confirm that commodities are extremely sensitive to market economic conditions. While the energy sector performs better under economic expansion periods, precious metals yield diversification benefits at most times. Livestock commodities display a high potential to reduce risk, especially during recessions. The role of commodities is similar during the global financial and European sovereign debt crises. Commodities are also relevant in the uncertain period of 2020–2022, although patterns are changing. During the COVID-19 period, precious metals do not increase performance, while at the beginning of the 2022 war in Eastern Europe, we find a generalized improvement in portfolios that outperforms all the other subperiods. Overall, this is not a myth, as there remains a diversification benefit, albeit a time-dependent one with a decreasing trend. Keywords: Loss-averse; Commodities; Diversification; Asset allocation models (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:quaeco:v:86:y:2022:i:c:p:281-295 DOI: 10.1016/j.qref.2022.08.003 Access Statistics for this article The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty More articles in The Quarterly Review of Economics and Finance from Elsevier |
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