 Permutation-Weighted Portfolios and the Efficiency of Commodity Futures MarketsRicardo Fernholz and Robert Fernholz Abstract: A market portfolio is a portfolio in which each asset is held at a weight proportional to its market value. Functionally generated portfolios are portfolios for which the logarithmic return relative to the market portfolio can be decomposed into a function of the market weights and a process of locally finite variation, and this decomposition is convenient for characterizing the long-term behavior of the portfolio. A permutation-weighted portfolio is a portfolio in which the assets are held at weights proportional to a permutation of their market values, and such a portfolio is functionally generated only for markets with two assets (except for the identity permutation). A reverse-weighted portfolio is a portfolio in which the asset with the greatest market weight is assigned the smallest market weight, the asset with the second-largest weight is assigned the second-smallest, and so forth. Although the reverse-weighted portfolio in a market with four or more assets is not functionally generated, it is still possible to characterize its long-term behavior using rank-based methods. This result is applied to a market of commodity futures, where we show that the reverse price-weighted portfolio substantially outperforms the price-weighted portfolio from 1977-2018. Date: 2020-01, Revised 2020-12 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2001.06914 Access Statistics for this paper More papers in Papers from arXiv.org |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.