20. Commodity Futures and Strategic Asset Allocation

  1. H. Kent Baker and
  2. Greg Filbeck
  1. Yongyang Su1,
  2. Marco C. K. Lau2 and
  3. Frankie Chau3

Published Online: 2 APR 2013

DOI: 10.1002/9781118656501.ch20

Alternative Investments: Instruments, Performance, Benchmarks, and Strategies

Alternative Investments: Instruments, Performance, Benchmarks, and Strategies

How to Cite

Su, Y., Lau, M. C. K. and Chau, F. (2013) Commodity Futures and Strategic Asset Allocation, in Alternative Investments: Instruments, Performance, Benchmarks, and Strategies (eds H. K. Baker and G. Filbeck), John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118656501.ch20

Author Information

  1. 1

    Adjunct Lecturer in Economics, Suffolk University

  2. 2

    Senior Lecturer of Economics, Newcastle Business School, Northumbria University

  3. 3

    Lecturer of Finance, Durham Business School, Durham University

Publication History

  1. Published Online: 2 APR 2013
  2. Published Print: 18 MAR 2013

ISBN Information

Print ISBN: 9781118241127

Online ISBN: 9781118656501

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Keywords:

  • strategic asset allocation;
  • intertemporal hedging;
  • commodities;
  • traditional assets

Summary

This chapter analyzes the role of commodities in the process of strategic asset allocation. It emphasizes computing the optimal weighting of commodities relative to the traditional assets in a multiperiod portfolio choice setting and offers some plausible explanations on why commodities are an important asset class beyond the traditional portfolios of stocks and bonds. From the perspective of U.S. investors, the analysis shows that investors have a relatively strong and stable intertemporal hedging demand for commodities for long-term horizons despite their increasingly easy and inexpensive access to the global equity and bond markets. Overall, the results lend support to those institutional investors who believe that commodities are an important asset class and continue to include such assets in their strategic portfolio allocation process.