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Investing in commodities - Will commodity futures enhance risk-adjusted return in efficient portfolios?

By Per Svennerholm and Eric Öström


With this paper we intend to investigate what kind of benefits there are by adding commodity futures to a well-diversified portfolio. Since the last fifteen years the commodity speculation has grown tremendously, which partially can be explained by that commodities exposes the investor to certain factors other than an investment in equities. According to our calculations the commodity futures have outperformed stocks during our research period, which partially could be explained by the increasing demand of physical commodities in developing countries e.g. India & China (Akey, 2005). By constructing different portfolios consisting of equities and corporate bonds we could investigate whether our portfolios will benefit from commodity futures and how this will vary over different levels of risk. By using monthly data; 2002-2012, we have concluded that by adding commodity futures to efficient portfolios, the return-to-volatility increases. We have established that gold is a superior investment among the commodity futures, during our sample period and geographical area. We have also concluded that a Norwegian portfolio consisting of stocks and bonds benefit more, in terms of return to volatility, than a Swedish portfolio by adding commodity futures

Year: 2013
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