The Risks and Rewards of Investing in Commodity–Based Indices

Abstract

In recent years new exchange traded and over–the–counter commodity indices have come into existence. This article reviews the construction of major investable commodity indices and compares their risk and return characteristics with those stock, bond, real estate, managed futures, and hedge fund indices, as well as those of active commodity managers. Each commodity index is examined both as a stand–alone investment and as part of a well–diversified portfolio with equities and bonds.