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Strategic and Tactical Roles of Enhanced Commodity Indices
Author(s) -
Rallis Georgios,
Miffre Joëlle,
Fuertes AnaMaria
Publication year - 2013
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.21571
Subject(s) - economics , diversification (marketing strategy) , commodity , momentum (technical analysis) , maturity (psychological) , index (typography) , market liquidity , asset allocation , financial economics , exploit , asset (computer security) , econometrics , monetary economics , business , finance , computer science , portfolio , psychology , developmental psychology , computer security , marketing , world wide web
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.