Portfolio Diversification with Commodity Futures: Properties of Levered Futures
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This study extends previous work on the impact of commodity futures on portfolio performance by explicitly incorporating levered futures into the portfolio optimization problem. Using data on nine individual commodity futures and one aggregate index from 1994-2003, we find that collateralized and levered futures strategies perform similarly in an ex-post context. Significant differences between the approaches emerge however when constraints on investment behavior exist. Further, levered futures do not result in a prohibitive number of margin calls. The investment performances of the collateralized and the levered strategies vary little across different rebalancing intervals, and frequent portfolio rebalancing does not necessarily result in superior performance.