Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/175234 
Year of Publication: 
2016
Series/Report no.: 
Working Paper No. 797
Publisher: 
Queen Mary University of London, School of Economics and Finance, London
Abstract: 
We revisit the question whether commodities should be included in investors' portfolios. We employ for the first time a stochastic dominance efficiency (SDE) approach to construct optimal portfolios with and without commodities and we evaluate their comparative performance. SDE circumvents the necessity to posit a specific utility function to describe investor's preferences and it does not impose distributional assumptions on asset returns. We find that commodities provide diversification benefits both in- and out- of-sample. This evidence is stronger when commodity indices which mimic dynamic commodity trading strategies are used. We explain our results by documenting that commodity markets are segmented from the equity and bond markets.
Subjects: 
Alternative investments
Commodity indices
Market integration
Portfolio choice
Stochastic dominance
JEL: 
C1
C4
C6
G10
G11
Document Type: 
Working Paper

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