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Abstract
Over the past two decades, commodity-linked products have become increasingly popular as an alternative asset class for many investors. This is mainly because long positions in commodities potentially offer diversification benefits in portfolios comprising other more traditional assets. Commodities also arguably provide equity-like returns and act as an inflation hedge. However, there is an ongoing debate concerning long-only positions in commodities as an adequate investment vehicle, especially given observed low or negative returns and increased correlation with other more common asset classes, as given periodically. The purpose of this article is to analyze the performance effects of including long/short commodity indices in more conventional stock–bond portfolios using out-of-sample tests over different periods and by employing different asset allocation strategies. Overall, the author identifies benefits of commodity inclusion from 2002 to 2011, but these benefits largely disappear from 2011 to 2015. An intriguing finding is that Henriksen observes a much lower risk–adjusted performance for the commodity indices after their launch date.
TOPICS: Commodities, security analysis and valuation, fixed income and structured finance, portfolio construction
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