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Type | Journal Article |
Scope | Discipline-based scholarship |
Title | Maximum diversification strategies along commodity risk factors |
Organization Unit | |
Authors |
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Item Subtype | Original Work |
Refereed | Yes |
Status | Published in final form |
Language |
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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. |
Free access at | DOI |
Related URLs |
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Digital Object Identifier | 10.1111/eufm.12122 |
Other Identification Number | merlin-id:14323 |
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