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Strategic and Tactical Roles of Enhanced Commodity Indices

Rallis, G., Miffre, J. and Fuertes, A. (2013). Strategic and Tactical Roles of Enhanced Commodity Indices. Journal of Futures Markets, 33(10), doi: 10.1002/fut.21571

Abstract

This article formally compares two traditional long-only commodity indices, Standard & Poor's Goldman Sachs Commodity Index (S&P-GSCI) and Dow Jones-UBS Commodity Index (DJ-UBSCI), with their enhanced versions that exploit signals based on contract maturity, momentum, and term structure. The enhanced indices are found to be useful for tactical asset allocation. With alphas ranging from 2.77% to 5.49% per annum, the maturity-enhanced indices offer the best abnormal performance after accounting for liquidity risk. Momentum and term structure enhancements also earn a positive, albeit smaller, alpha of 2.10% per annum on average. All the enhanced indices are found to have comparable effectiveness for risk diversification and inflation hedging as their traditional counterparts, making them useful for strategic asset allocation.

Publication Type: Article
Additional Information: This is the accepted version of the following article:Rallis, G., Miffre, J. and Fuertes, A.-M. (2013), Strategic and Tactical Roles of Enhanced Commodity Indices. J. Fut. Mark., 33: 965–992., which has been published in final form at http://dx.doi.org/10.1002/fut.21571
Publisher Keywords: Long-only commodity indices, Time-to-maturity, Momentum, Term structure.
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/6419
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