Back in the years before the financial crisis, I was involved in an argument among different investment specialists in the firm I worked for. The debate centred on the question if commodity investments (to be specific, commodity futures) made sense as a strategic allocation in a multi-asset portfolio. I was on the side that argued based on the
Investing in commodities (producers)? But that's immoral. You're being complitic in destroying The Planet. Hence the by now rather meager share of total global energy production for the likes of Shell and Exxon. And hence our nice western middle class pension funds divesting from all things fossil. This all makes perfect sense. Until it doesn't - anymore.
Great article, thanks. The research papers are too difficult for me (I can‘t follow all the statistical arguments) so I‘ll take the shortcut of asking you: do positive carry trades not usually have negative skew? In other words: are two of the strategies (long positive carry & short negative carry and long negative skew & short positive skew) not one and the same?
Thanks Peter. Spelling mistake corrected in the post.
And with regards to carry vs. skew, they are correlated but not the same. The way the performance of these factors is measured is by grouping commodities in different quartiles or quintiles. And that means that a commodity can end up in the top quartile by carry, yet only in the second quartile by skew. the result is that the top quartile baskets are not identical between the two approaches.
Could you possibly tell me where these two actually assert this: "Meanwhile, the strategy that Erb and Harvey expected to do well – momentum – doesn’t work at all anymore."? Page 24 of the accompanying PDF version of their paper suggests "These results are reassuring if one believes in momentum as a reliable source of return." The word "if" is italicized. Why might the word "if" be italicized? https://people.duke.edu/~charvey/Research/Published_Papers/P91_The_strategic_and.pdf
Agreed. Reading your version, the word if is italised indicating that they (the authors) do not believe in it. In my version, which is an older, contemporaneous version, this is not the case. Possibly, they added the italics later because people like me misinterpreted earlier versions of the doc?
Investing in commodities (producers)? But that's immoral. You're being complitic in destroying The Planet. Hence the by now rather meager share of total global energy production for the likes of Shell and Exxon. And hence our nice western middle class pension funds divesting from all things fossil. This all makes perfect sense. Until it doesn't - anymore.
Great article, thanks. The research papers are too difficult for me (I can‘t follow all the statistical arguments) so I‘ll take the shortcut of asking you: do positive carry trades not usually have negative skew? In other words: are two of the strategies (long positive carry & short negative carry and long negative skew & short positive skew) not one and the same?
Also, I minor pedantic thing: seize = cease
I = a
Thanks Peter. Spelling mistake corrected in the post.
And with regards to carry vs. skew, they are correlated but not the same. The way the performance of these factors is measured is by grouping commodities in different quartiles or quintiles. And that means that a commodity can end up in the top quartile by carry, yet only in the second quartile by skew. the result is that the top quartile baskets are not identical between the two approaches.
From the title I thought this was going to be an article about Bitcoin 😅
Could you possibly tell me where these two actually assert this: "Meanwhile, the strategy that Erb and Harvey expected to do well – momentum – doesn’t work at all anymore."? Page 24 of the accompanying PDF version of their paper suggests "These results are reassuring if one believes in momentum as a reliable source of return." The word "if" is italicized. Why might the word "if" be italicized? https://people.duke.edu/~charvey/Research/Published_Papers/P91_The_strategic_and.pdf
Agreed. Reading your version, the word if is italised indicating that they (the authors) do not believe in it. In my version, which is an older, contemporaneous version, this is not the case. Possibly, they added the italics later because people like me misinterpreted earlier versions of the doc?