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Commodity futures impact on equity funds portfolios

Mc Guire, Oscar LU (2015) NEKH01 20142
Department of Economics
Abstract (Swedish)
In the light of the latest decade of structural change and growth in trade on the commodity markets it is natural to ask the question: Is it worth adding commodity futures to your portfolio? The objective of this paper is to find out if commodity futures does or does not add to the performance of portfolios consisting of equity funds. The theory used is basic portfolio theory, with Sharpe's ratio as the measure of performance. I simulate real time portfolio optimization on given data with expected returns calculated with 60 months historical data. The results ex-ante show a great enhancement of the Sharpe's ratio if adding commodity futures to a equity funds portfolios. The results also indicates that a less diversified portfolio gains... (More)
In the light of the latest decade of structural change and growth in trade on the commodity markets it is natural to ask the question: Is it worth adding commodity futures to your portfolio? The objective of this paper is to find out if commodity futures does or does not add to the performance of portfolios consisting of equity funds. The theory used is basic portfolio theory, with Sharpe's ratio as the measure of performance. I simulate real time portfolio optimization on given data with expected returns calculated with 60 months historical data. The results ex-ante show a great enhancement of the Sharpe's ratio if adding commodity futures to a equity funds portfolios. The results also indicates that a less diversified portfolio gains more by adding the commodity futures, than does a well diversified one. Ex-post results, however, show a negative effect of adding commodity futures to both a well diversified portfolio and a less diversified one. My interpretation of this result is that, during a tumultuous decade, the method of calculating expected return with 60 months equally weighted averages do not yield sufficient precision in the forecasts (Less)
Please use this url to cite or link to this publication:
author
Mc Guire, Oscar LU
supervisor
organization
course
NEKH01 20142
year
type
M2 - Bachelor Degree
subject
keywords
Commodity futures, Sharpe's ratio, equity funds, sector funds, portfolio optimization. 
language
English
id
5051081
date added to LUP
2015-02-19 14:06:17
date last changed
2015-02-19 14:06:17
@misc{5051081,
  abstract     = {In the light of the latest decade of structural change and growth in trade on the commodity markets it is natural to ask the question: Is it worth adding commodity futures to your portfolio? The objective of this paper is to find out if commodity futures does or does not add to the performance of portfolios consisting of equity funds. The theory used is basic portfolio theory, with Sharpe's ratio as the measure of performance. I simulate real time portfolio optimization on given data with expected returns calculated with 60 months historical data. The results ex-ante show a great enhancement of the Sharpe's ratio if adding commodity futures to a equity funds portfolios. The results also indicates that a less diversified portfolio gains more by adding the commodity futures, than does a well diversified one. Ex-post results, however, show a negative effect of adding commodity futures to both a well diversified portfolio and a less diversified one. My interpretation of this result is that, during a tumultuous decade, the method of calculating expected return with 60 months equally weighted averages do not yield sufficient precision in the forecasts},
  author       = {Mc Guire, Oscar},
  keyword      = {Commodity futures,Sharpe's ratio,equity funds,sector funds,portfolio optimization. },
  language     = {eng},
  note         = {Student Paper},
  title        = {Commodity futures impact on equity funds portfolios},
  year         = {2015},
}