Volatility and Correlation Timing: The Role of Commodities

Pouliasis, P. K. & Papapostolou, N. C. (2018). Volatility and Correlation Timing: The Role of Commodities. Journal of Futures Markets,

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Abstract

This paper examines the role of commodit ies from the perspective of dynamic asset allocation. W e model conditional second moments of st ock, bond and commodity futures and examine their impact on the portfolio choice decision of a risk-averse investor in a mean-variance framework . Findings suggest that adding commodities in the opportunity set enhances portfolio risk-return characteristics and offers diversification benefits. Moreover, there is substantial economic value in both volatility and correlation timing strategies. Results are robust across various sub-periods and rebalancing strategies , alternative correlation dynamic s specifications, short-sale constraints and transaction costs under both in-and out-of-sample settings.

Item Type: Article
Additional Information: This is the peer reviewed version of the following article: Pouliasis, P. K. & Papapostolou, N. C. (2018). Volatility and Correlation Timing: The Role of Commodities. Journal of Futures Markets, which is to be published in final form at https://onlinelibrary.wiley.com/journal/10969934. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.
Uncontrolled Keywords: Asset Allocation; Commodities; Volatility Timing; Correlation Timing; Multivariate GARCH
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/19758

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