Strategic and Tactical Roles of Enhanced-Commodity Indices
Authors : Ana-Maria Fuertes Professor of Financial Econometrics, Cass Business School
Joëlle Miffre Associate Professor of Finance, EDHEC Business School
Georgio Rallis Research Fellow, Cass Business School
This article compares the risk and performance of two traditional commodity indices with enhanced long-only versions that exploit signals based on momentum, term structure and the time-to-maturity of the contracts.
EDHEC Working Paper
Regarding risk diversification and inflation hedging properties, the enhanced indices are as effective tools for strategic asset allocation as the traditional ones. In addition, with alphas ranging from 0.49% to 6.18% a year, the enhanced indices improve upon the performance of their traditional counterparts, both statistically and economically, suggesting that they can also be utilized for tactical asset allocation. Among those considered, the leading enhanced index targets maturities far away from the present.
Created on July 13, 2010
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