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The Journal of Alternative Investments

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Article

Spicing Up a Portfolio with Commodity Futures: Still a Good Recipe?

Robert T. Daigler, Brice Dupoyet and Leyuan You
The Journal of Alternative Investments Spring 2017, 19 (4) 8-23; DOI: https://doi.org/10.3905/jai.2017.19.4.008
Robert T. Daigler
is the Knight Ridder research professor of finance at Florida International University in Miami, FL.
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  • For correspondence: daiglerr@fiu.edu
Brice Dupoyet
is a co-founder and portfolio manager at Microsigma Capital Management and an associate professor of finance at Florida International University in Miami, FL.
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  • For correspondence: dupoyetb@fiu.edu
Leyuan You
is an associate professor of finance at Texas State University in San Marcos, TX.
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  • For correspondence: ly17@txstate.edu
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Abstract

In this article, the authors investigate whether employing individual commodity futures provides a superior optimized risk–return strategy relative to an equity portfolio, given the recent rise in correlations between commodity and equity markets. They first construct Markowitz mean–variance optimized portfolios of commodity and financial futures contracts within sample and then evaluate their subsequent out-of-sample performance using various time periods, targeted risk levels, and rebalancing frequencies. These portfolios generally outperform benchmark equity indexes, both in terms of return and risk levels. The portfolios also exhibit lower tail risk (reduced potential extreme losses) relative to the equity indexes. These findings support the use of commodity futures for both diversification and portfolio optimization purposes and illustrate appropriate application metrics. Moreover, the results are superior to using the commodity index approach emphasized by most previous studies.

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The Journal of Alternative Investments: 19 (4)
The Journal of Alternative Investments
Vol. 19, Issue 4
Spring 2017
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Spicing Up a Portfolio with Commodity Futures: Still a Good Recipe?
Robert T. Daigler, Brice Dupoyet, Leyuan You
The Journal of Alternative Investments Mar 2017, 19 (4) 8-23; DOI: 10.3905/jai.2017.19.4.008

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Spicing Up a Portfolio with Commodity Futures: Still a Good Recipe?
Robert T. Daigler, Brice Dupoyet, Leyuan You
The Journal of Alternative Investments Mar 2017, 19 (4) 8-23; DOI: 10.3905/jai.2017.19.4.008
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  • Article
    • Abstract
    • EVIDENCE AND CONSIDERATIONS FOR ADDING COMMODITY FUTURES CONTRACTS TO A PORTFOLIO
    • DATA AND METHODOLOGY
    • EMPIRICAL RESULTS
    • OUT-OF-SAMPLE OPTIMAL PORTFOLIOS
    • PORTFOLIO GROWTH AND STABILITY
    • PORTFOLIO WEIGHTS
    • EXTREME LOSSES
    • CONCLUSIONS
    • ENDNOTES
    • REFERENCES
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  • PDF (Subscribers Only)

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