Diversification effect of commodity futures on financial markets

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ID: 92948
2018
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Abstract
This paper examines the portfolio diversification effect of commodity futures on financial market products introducing a comprehensive evaluation standard of risk standardization, robustly small correlation, and risk-return tradeoff. Regarding risk standardization, we propose a definition of portfolio diversification as how much the distribution of portfolio returns is close to a normal distribution. It is shown by using an ɑ-stable distribution that if commodity price return distribution has the opposite sign of skewness parameter β to financial portfolio’s β, commodity diversification effect exists. The empirical studies using S&P 500, U.S. 10-year treasury notes, and DJ-AIG commodity index are conducted to investigate the portfolio diversification effects. The parameter estimation results of portfolio return distributions, the conditional correlations using the dynamic conditional correlation model with financial exogenous variables, and the effcient frontier from the mean-CVaR portfolio optimization all suggest that commodity futures have a diversification effect on financial markets.
Reference Key
kanamura2018diversificationquantitative Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Kanamura, Takashi;
Journal quantitative finance and economics
Year 2018
DOI
DOI not found
URL
http://www.aimspress.com/article/10.3934/QFE.2018.4.821/fulltext.html
Keywords
economics as a science finance economic theory. demography industrial engineering. management engineering applied mathematics. quantitative methods public finance

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