Strategic and Tactical Roles of Enhanced-Commodity Indices

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.

Author(s):

Ana-Maria Fuertes

Professor of Financial Econometrics, Cass Business School

Joelle Miffre

Associate Professor of Finance, EDHEC Business School

Georgio Rallis

Research Fellow, Cass Business School

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.

Type: Working paper
Date: le 13/07/2010
Research Cluster : Finance

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