Long and Short of Commodity Futures
September 19, 2011 - Commodity Futures
What is the best way to incorporate commodities into a diversified portfolio? In her August 2011 paper entitled “Long-Short Commodity Investing: Implications for Portfolio Risk and Market Regulation”, Joelle Miffre studies the performance of long-short commodity strategies and their hedging properties with respect to traditional asset classes (proxied by the S&P 500 Index and Barclays Capital US Aggregate Bond Index), especially during crises. She calculates futures contract returns assuming that investors hold the nearest contract until one month to maturity and then roll to the second nearest contract. She considers four single-sort and four double-sort long-short strategies based on past return (momentum), roll return (term structure), positions of hedgers and positions of speculators. All eight strategies systematically take long (short) positions in commodities expected to appreciate (depreciate) based on these indicators. Using weekly (Friday) data for 27 commodity futures (12 agricultural, five energy, four livestock and five metal), the S&P-GSCI, the selected traditional asset class proxies and CFTC Commitments of Traders reports on positions of hedgers and speculators during October 1992 through March 2011, she finds that: Keep Reading