1/ Comparing First, Second and Third Generation Commodity Indices (Miffre)
For a short common sample period, long/short third-generation commodity indices outperform long-only second-generation versions, which outperform first-generation passive indices.
papers.ssrn.com/sol3/papers.cf…
For a short common sample period, long/short third-generation commodity indices outperform long-only second-generation versions, which outperform first-generation passive indices.
papers.ssrn.com/sol3/papers.cf…
2/ For a period common to all 38 indices the authors consider, the first-generation long-only, full-collaterallized, passive indices have negative returns.
The period contains the 2008-9 financial crisis, which accounts for both the negative returns and the negative skewness.
The period contains the 2008-9 financial crisis, which accounts for both the negative returns and the negative skewness.
3/ The second-generation indices, which use various strategies to minimize the impact of contango in a long-only context, outperform the first-generation indices.
The difference in skewness is driven mainly by the first-generation DCI index (and goes away if DCI is removed).
The difference in skewness is driven mainly by the first-generation DCI index (and goes away if DCI is removed).
4/ The third generation long/short indices outperform the second-generation indices with respect to raw returns, Sharpe ratios, skewness, and kurtosis.
(Some of the improved L/S performance may have come from the diversifying power of the momentum and fundamental strategies.)
(Some of the improved L/S performance may have come from the diversifying power of the momentum and fundamental strategies.)
5/ L/S outperformance held up in October of 2008 as well.
To avoid backfilling bias, the authors used only live data to evaluate the indices, but this means that the strategies were compared within a window of only four years.
To avoid backfilling bias, the authors used only live data to evaluate the indices, but this means that the strategies were compared within a window of only four years.
6/ Related research:
Exploiting Commodity Momentum Along the Futures Curves
Commodity Futures Risk Premium: 1871–2018
Strategic Allocation to Commodity Factor Premiums
Exploiting Commodity Momentum Along the Futures Curves
Commodity Futures Risk Premium: 1871–2018
Strategic Allocation to Commodity Factor Premiums
