ABSTRACT
In recent years, investments in commodities, via commodity futures and commodity index funds, have grown rapidly. e appeal of investing in commodities is generally attributed to the low correlation with traditional stocks, which allows for portfolio diversication benets, that is reduction of risk for any given level of expected return (Erb and Harvey 2006, Gorton and Rouwenhorst 2006, Sanning et al. 2007, Geman and Kharoubi 2008, Masset and Henderson 2008, Buyuksahin et al. 2010, Chong and Mire 2010, Masset and Weisskopf 2010), and the evidence that protable trading strategies can be constructed. Indeed, a number of studies nd that commodity returns can be predicted by a number of variables (Hong and Yogo 2011), and protable momentum and term structure strategies can be implemented (Schwarz and Szakmary 1994, Crain and Lee 1996, Brooks et al. 2001, Yang et al. 2001, Erb and Harvey 2006, Gordon et al. 2007, Mire and Rallis 2007, Fuertes et al. 2010, Stoll and Whaley 2010, Szakmary et al. 2010). e majority of these studies were conducted in the framework of cointegration analysis and threshold cointegration analysis; from a methodological standpoint, this allows the analysis of the interdependence between asset classes, their relationships, and the speed of adjustment to the long-run equilibrium.
