The Handbook of Commodity Investing

CHAPTER 9

Statistical Analysis of Commodity Futures Returns

Reinhold Hafner, Ph.D.

Managing Director

risklab germany GmbH

Maria Heiden

Analyst

Varengold Wertpapierhandelsbank AG

Commodity investments have become increasingly popular among investors over the last couple of years. Initially reserved for high-net-worth individuals, commodities progressively drew the attention of private and institutional investors. There seem to be two main reasons for the attractiveness of commodities. First, commodities tend to offer diversification benefits with respect to other investment opportunities such as stocks and bonds. Second, commodities have shown up remarkable performance in recent years, with the total return index of the Dow Jones-AIG Commodity Index family returning in excess of 16% each year from 2002 to 2006.

In a low interest rate environment, the strong performance of commodity investments was the main driver behind their success. The recent price surge in commodities is the result of strong demand shocks across all sectors, supply shocks in some sectors (e.g., crude oil), and structural money flows into all sectors from different investor types (private investors, institutional investors, banks, and hedge funds). In particular, the strong economic growth of rapidly developing countries like China, India, and Brazil and the accompanying need for energy and industrial metals led to a structural excess demand on commodity markets.

Investors usually obtain commodity exposure via ...