Facts and Fantasies about Commodity Futures

Gary Gorton and K. Rouwenhorst

No 10595, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We construct an equally-weighted index of commodity futures monthly returns over the period between July of 1959 and March of 2004 in order to study simple properties of commodity futures as an asset class. Fully-collateralized commodity futures have historically offered the same return and Sharpe ratio as equities. While the risk premium on commodity futures is essentially the same as equities, commodity futures returns are negatively correlated with equity returns and bond returns. The negative correlation between commodity futures and the other asset classes is due, in significant part, to different behavior over the business cycle. In addition, commodity futures are positively correlated with inflation, unexpected inflation, and changes in expected inflation.

JEL-codes: G11 G13 (search for similar items in EconPapers)
Date: 2004-06
New Economics Papers: this item is included in nep-fin
Note: AP
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Citations: View citations in EconPapers (59)

Published as Gorton, Gary and K. Geert Rouwenhorst. "Facts And Fantasies About Commodity Futures," Financial Analysts Journal, 2006, v62(2,Mar/Apr), 47-68.

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