Ira Iosebashvili and Timothy Puko report in the Wall Street Journal on Duke University’s finance professor Campbell Harvey:
“His next project is aimed at one of his favorite targets: Commodities. When a famous academic paper helped bring the asset class into the mainstream in the early 2000s, Mr. Harvey warned commodities were too opaque and volatile to hold for the long term, and were unlikely to provide the stocklike returns that some consultants suggested. Prices for oil, metals and other raw materials crashed twice in the following decade, vindicating his position.”
Themreal world gets in the way:
“Mr. Harvey stress-tested some of the other paper’s main claims. For example, he said that replicating as diverse a commodities portfolio as Messrs. Gorton and Rouwenhorst recommended would prove challenging in the real world since many commodities, such as tin or butter, are thinly traded.
Another assumption that didn’t stand up was the concept of “roll yield,” or the bonus investors pocket when selling expiring commodity contracts and buying newer ones, which were often cheaper.
There was no guarantee that prices for future-dated contracts wouldn’t eventually rise, Mr. Harvey argued. In fact, many commodities are now more expensive further out in time, hurting investors who hold futures for long periods.”
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