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Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title Maximum diversification strategies along commodity risk factors
Organization Unit
Authors
  • Markus Leippold
  • Simone Bernardi
  • Harald Lohre
Item Subtype Original Work
Refereed Yes
Status Published in final form
Language
  • English
Journal Title European financial management
Publisher Wiley-Blackwell Publishing, Inc.
Geographical Reach international
ISSN 1354-7798
Volume 24
Number 1
Page Range 53 - 78
Date 2018
Abstract Text Pursuing risk-based allocation across a universe of commodity assets, we find diversified risk parity (DRP) strategies to provide convincing results. DRP strives for maximum diversification along uncorrelated risk sources. A straightforward way to derive uncorrelated risk sources relies on principal components analysis (PCA). While the ensuing statistical factors can be associated with commodity sector bets, the corresponding DRP strategy entails excessive turnover because of the instability of the PCA factors. We suggest an alternative design of the DRP strategy relative to common commodity risk factors that implicitly allows for a uniform exposure to commodity risk premia.
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Digital Object Identifier 10.1111/eufm.12122
Other Identification Number merlin-id:14323
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