Strategic Asset Allocation and Intertemporal Hedging Demands: With Commodities as an Asset Class

Abstract

[Abstract]This paper analyzes the role of commodities in the process of strategic asset allocation, with an attempt of computing the weight of commodities relative to traditional assets in a multi-period portfolio choice problem and understanding the economic interpretations to its importance. We find U.S. investors have a significantly stable intertemporal hedging demand for commodities in the long horizons, even when they have access to foreign equity markets, for example, foreign stock market. Our results provide support to institutional investors attempting to include commodities into their strategic asset allocation decision.

Intertemporal Portfolio Allocation and Hedging Demand: An Application to South Africa

“…During the past two decades, a number of studies have focussed on hedging demand and the role it plays in portfolio allocation, for example Campbell andViceira (1999, 2001), Campbell, Chan and Viceira (2003), Lynch (2001), Su and Lau (2010), Ang, Papanikolaou and Westerfield (2013). However, the majority of these studies calibrated the models using data from the United States (US) and to date there has been no empirical application that considers the effects of return predictability on hedging demand for an investor in South Africa (SA).…”