The Handbook of Commodity Investing

CHAPTER 4

Macroeconomic Determinants of Commodity Futures Returns

Zeno Adams

Research Assistant

Endowed Chair of Asset Management

European Business School (EBS)

International University Schloss Reichartshausen

Roland Füss, Ph.D.

Professor of Finance

Endowed Chair of Asset Management

European Business School (EBS)

International University Schloss Reichartshausen

Dieter G. Kaiser, Ph.D.

Director Alternative Investments

Feri Institutional Advisors GmbH

Research Fellow

Centre for Practical Quantitative Finance

Frankfurt School of Finance and Management

Commodities have enjoyed a renewed high interest and increasing attention from both investors and academics within the last years. After oil prices were in discussion during the oil price shocks in the 1970s, a period of declining commodity prices followed for the next 20 years, which went along with little attention from the academic side. As of the third quarter 2007, prices of most commodities are at a record high in nominal terms and at a still very high level in real terms, and futures prices suggest that the high prices are expected to stay high for some time.

Most of the literature on commodities concentrates on long-term passive investments in commodity futures. However, a pure buy-and-hold strategy may lead to higher risk positions and further disadvantages for the investor. On the one hand, investors have no influence on the timing and the weights of the constituents of the portfolio and thus cannot react to market changes. ...