ABSTRACT
Financial investors mainly take positions in commodity futures contracts as a natural way to gain exposure to commodity risk without owning the physical asset. Erb and Harvey (2006) and Gorton and Rouwenhorst (2006) nd that historically, commodity futures exhibited little comovement, zero or even negative correlation with stock returns, with Sharpe ratios fairly close to those of equities. erefore, according to traditional portfolio theory, commodities should increase diversication when included in equity portfolios and may help enhance the portfolio’s risk-return prole. Possibly boosted by the potential for such diversication benets, investments in commodity futures indexes and related instruments grew quickly aer the early 2000s* (see Büyükşahin and Robe (2014), Etula (2010), Hong and Yogo (2012) and Tang and Xiong (2012) for some analysis of this recent boom).
