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2020 ; 71
(ä): 101515
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They re back! Post-financialization diversification benefits of commodities
#MMPMID38620222
Gagnon MH
; Manseau G
; Power GJ
Int Rev Financ Anal
2020[Oct]; 71
(ä): 101515
PMID38620222
show ga
Do alternative assets such as commodities improve portfolio diversification? The
empirical evidence is generally positive but mixed, and almost exclusively
focuses on U.S. data. Using several distinct commodity indexes over the period
1993-2019, we investigate the case of an investor in Canada, a commodity-currency
country where equities are already exposed to commodity beta. We use spanning
tests and several out-of-sample performance measures for both risk-averse and
disappointment-averse investors. Overall, we find that while the diversification
potential of commodities was limited in Canada before and during
financialization, the post-financialization period offers new opportunities. The
evidence suggests that portfolio performance is significantly improved using
some, but not all, commodity indexes. Thus, the choice of a relevant commodity
index matters as a vehicle for diversification. Finally, compounding an
international component to the sectorial diversification of the portfolio can
significantly improve its performance.