Working Paper: NBER ID: w10595
Authors: Gary Gorton; K. Geert Rouwenhorst
Abstract: We construct an equally-weighted index of commodity futures monthly returns over the period between July of 1959 and March of 2004 in order to study simple properties of commodity futures as an asset class. Fully-collateralized commodity futures have historically offered the same return and Sharpe ratio as equities. While the risk premium on commodity futures is essentially the same as equities, commodity futures returns are negatively correlated with equity returns and bond returns. The negative correlation between commodity futures and the other asset classes is due, in significant part, to different behavior over the business cycle. In addition, commodity futures are positively correlated with inflation, unexpected inflation, and changes in expected inflation.
Keywords: Commodity Futures; Investment Returns; Risk Premium; Diversification; Inflation Hedge
JEL Codes: G13; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Commodity Futures (G13) | Equity Returns (G12) |
| Commodity Futures Returns (G13) | Equity Returns (G12) |
| Commodity Futures Returns (G13) | Bond Returns (G12) |
| Commodity Futures (G13) | Inflation (E31) |
| Equity Returns (G12) | Commodity Futures Returns (G13) |