Should investors include commodities in their portfolios after all? New evidence |
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Authors: | Charoula Daskalaki |
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Institution: | a Department of Banking and Financial Management, University of Piraeus, Greece b Financial Options Research Centre, Warwick Business School, University of Warwick, UK c Cass Business School, City University, UK |
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Abstract: | This paper investigates whether an investor is made better off by including commodities in a portfolio that consists of traditional asset classes. First, we revisit the posed question within an in-sample setting by employing mean-variance and non-mean-variance spanning tests. Then, we form optimal portfolios by taking into account the higher order moments of the portfolio returns distribution and evaluate their out-of-sample performance. Under the in-sample setting, we find that commodities are beneficial only to non-mean-variance investors. However, these benefits are not preserved out-of-sample. Our findings challenge the alleged diversification benefits of commodities and are robust across a number of performance evaluation measures, utility functions and datasets. The results hold even when transaction costs are considered and across various sub-periods. Not surprisingly, the only exception appears over the 2005-2008 unprecedented commodity boom period. |
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Keywords: | G10 G11 G12 |
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