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Holding a commodity futures index fund in a globally diversified portfolio: A placebo effect?

By Bolong Cao, Shamila Jayasuriya and William Shambora


An increasing number of investors are including futures-based commodity index funds in their portfolios. The argument is that these funds increase diversification, enhance returns and serve as an inflation hedge. Much of the recent literature served to reinforce these ideas. We update the literature by examining recent data on returns and volatility. We further extend the literature by comparing the efficient frontiers of globally diversified stock and bond portfolios with and without the inclusion of futures index funds. We find little difference between the portfolios. Additionally, the returns from such funds do not appear significantly different than zero. They also lag the returns on spot commodities which have lagged inflation over the long haul.Commodity futures index fund, stationary bootstrap, efficient portfolio frontier

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