commodity investing - maximizing returns through fundamental analysis - dunsby 2007

[...]... S&P 500 Bonds T-Bills Collateralized Commodity Portfolio 1.15% 0.18% −0.46% 5.16% 0.22% 3.57% 0.79% 0.22% 0.87% 5.93% Uncollateralized Commodity Portfolio 0.08% 5.98% Note: Twenty-seven months over the period February 1962 through March 2007 c02 JWBK085 -Dunsby December 24, 2007 15:36 Char Count= 23 Commodity Futures as Investments TABLE 2.8 Commodity Returns and Periods of Low Stock Returns S&P 500... important distinction that investors in commodity markets invest almost always in commodity future contracts and not in the underlying commodity This has important implications for returns that will be explored in Chapter 20, “Some Building Blocks of a Commodity Trading System.” c02 JWBK085 -Dunsby December 24, 2007 15:36 Commodity Futures as Investments Char Count= 11 Commodity futures are listed on exchanges... softs chapters, and Jeff Smith for reading the grain chapters ix fm JWBK085 -Dunsby January 8, 2008 16:9 x Char Count= 0 c01 JWBK085 -Dunsby December 24, 2007 10:3 Char Count= PART One Basics 1 c01 JWBK085 -Dunsby December 24, 2007 10:3 2 Char Count= c01 JWBK085 -Dunsby December 24, 2007 10:3 Char Count= CHAPTER 1 Introduction I n 1980 Julian Simon and Paul Ehrlich bet $1,000 on the future price of five metals... and contributing to the positive historical returns from investing in oil futures There are various approaches to investing in commodities The most common, of course, is to invest in an index But there are others For example, one could buy commodity- based equities, invest with a trend-following commodity trading advisor (CTA), use judgment to assess the commodity environment and to make the appropriate... than just recite the mantra that commodities have yielded equity-like returns during the past 30 years It is important to emphasize that this is a book on commodity investing and, for that reason, we will be constantly trying to bring everything back c01 JWBK085 -Dunsby Introduction December 24, 2007 10:3 Char Count= 5 to the theme of investing There are many other economically interesting approaches... 0.09 0.11 0.33 0.46 t-Stat 3.54 2.24 3.36 2.80 0.54 −0.10 −0.64 −0.58 1.36 2.20 1.74 0.99 0.60 1.37 0.36 1.52 2.53 3.30 −0.12 0.58 0.56 1.80 2.45 (Continued ) c02 JWBK085 -Dunsby December 24, 2007 15:36 Char Count= 15 Commodity Futures as Investments TABLE 2.2 (Continued) Panel B: May 1983–March 2007 Annualized Annualized Annualized Geometric Arithmetic Standard Sharpe Returns Returns Deviation Ratio... 100%)/3 = 17%, but the investor would have lost all of his money c02 JWBK085 -Dunsby December 24, 2007 Commodity Futures as Investments 15:36 Char Count= 17 Turning to the individual compounded commodity returns, over the entire period 14 of the 22 commodities had positive returns From May 1983 onward, 10 of the 22 had positive returns Not all contracts existed prior to May 1983 and some that did had... positive returns It is interesting to compare the returns earned from commodity futures to the percent change in price of the spot commodities This will bring into relief any differences there may be between the change in physical commodity prices and the change in commodity future prices As a reminder, investors’ exposure to the commodity markets is by way of commodity futures, not the physical commodity. .. in Chapter 20, “Some Building Blocks of a Commodity Trading System.” c02 JWBK085 -Dunsby December 24, 2007 15:36 Char Count= 19 Commodity Futures as Investments COMMODITY RETURNS COMPARED WITH STOCKS AND BONDS How have commodities fared relative to stocks and bonds? This is obviously an important question to investors since for most investors equities and fixed-income instruments are their typical investment... returns of the equally weighted commodity portfolio to the returns of stocks and bonds For this we use the returns of the S&P 500, 10-year U.S Treasury Bonds, and T-Bills The data for these series are explained in the appendix to this chapter For commodities we now switch to a fully collateralized measure This is done by simply adding T-Bill interest to the previously constructed equally weighted commodity . class="bi x0 y0 w0 h0" alt="" fm JWBK085 -Dunsby January 8, 2008 16:9 Char Count= 0 Commodity Investing Maximizing Returns through Fundamental Analysis ADAM DUNSBY JOHN ECKSTEIN JESS GASPAR SARAH. at www.WileyFinance.com. ii fm JWBK085 -Dunsby January 8, 2008 16:9 Char Count= 0 Commodity Investing Maximizing Returns through Fundamental Analysis ADAM DUNSBY JOHN ECKSTEIN JESS GASPAR SARAH. at www.wiley.com. Library of Congress Cataloging-in-Publication Data: Commodity investing : maximizing returns through fundamental analysis / Adam Dunsby . . . [et al.]. p. cm. – (Wiley finance