The Handbook of Commodity Investing

CHAPTER 7

Review of Commodity Futures Performance Benchmarks

Roland Füss, Ph.D.

Professor of Finance

Endowed Chair of Asset Management

European Business School (EBS)

International University Schloss Reichartshausen

Christian Hoppe

Senior Specialist Securitization and Credit Derivatives

Commerzbank AG

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

Along with growing investor interest in commodity investments has come a dramatic increase in the number of commodity indexes being published worldwide. These indexes are widely used as price indicators for economists and investors. However, they are also rapidly assuming the role of comparison benchmarks in portfolio management, as well as acting as underlying instruments for certain derivative structures.

Recent empirical studies have focused mainly on single commodity indexes or a group of subindexes of the same provider, using a comparison analysis to contrast the risk and return of these indexes versus traditional asset classes. This approach, however, neglects the questions of validity and reliability that arise from using commodity indexes from various providers. An effective empirical approach would focus on the heterogeneity of commodity indexes by comparing the risk-return behavior of single commodity subindexes in order to detect significant shifts among individual benchmark portfolios. ...