Facts and Fantasies About Commodity Futures Ten Years Later

Abstract

has nothing to currently disclose. He was a consultant to AIG Financial Products from 1996-2008. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w21243.ack NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Best Practice for Cost-of-Capital Estimates

“…We also briefly look at (U.S.) market betas for some exchange rates, foreign stock market indexes, and commodities; the untabulated results are summarized as follows: Commodities. Our findings are in line with those of Bhardwaj, Gorton, and Rouwenhorst (2015). For nearly a decade, the oil price has had a strong positive market beta.…”

“…Commodities. Our findings are in line with those of Bhardwaj, Gorton, and Rouwenhorst (2015). For nearly a decade, the oil price has had a strong positive market beta.…”

Properties of Long/Short Commodity Indices in Stock and Bond Portfolios

“…Erb and Harvey [2006] claim that this only occurred if there are positive spot returns in the future. Bhardwaj et al [2015] maintain the conclusions of their 2006 study, while Sanders and Irwin [2012] provide evidence that long-only commodity futures markets produce no earnings and that the precise source of returns is unclear.…”

“…This suggests that long positions in commodities are potentially beneficial for diversification in a long-only portfolio of stocks and/or bonds (see e.g., Kaplan and Lummer [1998]; Georgiev [2001]; Erb and Harvey [2006]; Gorton and Rouwenhorst [2006]; Büyüks ‚ ahin et al [2010]; Conover et al [2010]; Bhardwaj et al [2015]). However, correlation may vary across different phases of the business cycle.…”

“…Booming activity may also often account for an increase in interest rates and hence expectations for a decrease in growth, which again may cause financial assets to perform poorly (Geman [2005]; Fabozzi et al [2008]). Together, these factors suggest that commodities do not provide equally good diversification benefits with other asset classes at all points in time (Gorton and Rouwenhorst [2006]; Kat [2006]; Bhardwaj et al [2015]). …”