Swing Trading Signals


Since 2013

  • 100% Quantified, data-driven and Backtested
  • We always show our results!
  • Signals every day via our site or email
  • Cancel at any time!

Benchmarking Commodity Investments

Last Updated on 10 February, 2024 by Rejaul Karim

Jesse Blocher from Vanderbilt University, Ricky Cooper from Illinois Institute of Technology, and Marat Molyboga from Efficient Capital Management present a comprehensive analysis of commodity investments in their paper “Benchmarking Commodity Investments.”

While the financialization of commodities has been extensively examined, the focus shifts to the profitable investment aspect in this study. The authors propose a four-factor asset pricing model for commodity returns. Their model not only factors in commodity spot and term risk premia but also presents a novel approach related to investable portfolios.

The straightforward construction of these factors marks an improvement over prior models, offering a compelling framework for pricing commodity risk premia.

Notably, the authors advocate that their four-factor model serves as an apt benchmark to evaluate the performance of commodity investment vehicles, providing investors with valuable insights and metrics to gauge the profitability of commodity investments in the evolving financial landscape.

Abstract Of Paper

While much is known about the financialization of commodities, less is known about how to profitably invest in commodities. We develop a four-factor asset pricing model of commodity returns. Our four-factor model prices both commodity spot and term risk premia in an intuitive manner related to investable portfolios. The straightforward construction of our factors is an improvement over previous models. Furthermore, our four-factor model prices commodity risk premia using both sorted portfolios and risk adjusted alphas as benchmarks. Thus, we feel it is an appropriate benchmark to evaluate commodity investment vehicles.

Original paper – Download PDF

Here you can download the PDF and original paper of Benchmarking Commodity Investments.

(An option to download will come shortly)

Conclusion

In conclusion, the work by Jesse Blocher, Ricky Cooper, and Marat Molyboga significantly advances the understanding of profitable commodity investments through the development of a comprehensive four-factor asset pricing model. Their model not only adeptly prices commodity spot and term risk premia but also offers an intuitive approach in relation to investable portfolios.

The straightforward construction of these factors represents a noteworthy enhancement over previous models, providing a valuable tool for investors seeking to profitably engage with commodity investments.

Moreover, the authors highlight the versatility of their four-factor model in pricing commodity risk premia using both sorted portfolios and risk-adjusted alphas as benchmarks. As such, the proposed model offers a robust and appropriate benchmark to effectively evaluate the performance of commodity investment vehicles, thereby furnishing investors with a valuable framework for decision-making in the dynamic and complex landscape of commodity investments.

Related Reading:

Fear of Hazards in Commodity Futures Markets

Does Sophistication of the Weighting Scheme Enhance the Performance of Long-Short Commodity Portfolios?

FAQ

Q1: What is the focus of the paper “Benchmarking Commodity Investments,” and how does it contribute to the understanding of commodity investments?

A1: The paper focuses on the profitable aspect of commodity investments, providing a comprehensive analysis of commodity returns. The authors introduce a four-factor asset pricing model that factors in commodity spot and term risk premia, offering a novel and straightforward approach related to investable portfolios. This contribution enhances the understanding of how to profitably invest in commodities.

Q2: What distinguishes the four-factor asset pricing model proposed by the authors, and how does it improve upon previous models?

A2: The four-factor asset pricing model proposed by the authors distinguishes itself by its intuitive pricing of commodity spot and term risk premia in relation to investable portfolios. The model’s straightforward construction represents an improvement over previous models, providing a more accessible and effective framework for pricing commodity risk premia.

Q3: How does the paper recommend using the four-factor model as a benchmark, and what insights does it offer to investors engaged in commodity investments?

A3: The authors recommend using their four-factor model as an appropriate benchmark to evaluate the performance of commodity investment vehicles. The model offers insights by pricing commodity risk premia using both sorted portfolios and risk-adjusted alphas as benchmarks. This approach provides investors with valuable metrics and a robust framework to assess the profitability of commodity investments in the evolving financial landscape.

Check The Leading Resource On The Internet For Research And Academic Papers

Leave a Reply

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

Monthly Trading Strategy Club

$42 Per Strategy

>

Login to Your Account



Signup Here
Lost Password