Abstract
This study compares first generation, i.e. long-only passive, commodity indices based on financial diversification criteria, such as equal weight, equal risk contribution and global minimum variance, to the main first generation commodity indices used as vehicles for investment, namely the S&P GSCI (GSCI) and the BCOM. The GSCI and the BCOM are mainly computed according to the world individual commodity production. We find that commodity indices based on financial diversification offer better Sharpe ratios, lower volatilities, and lower correlation with bonds and equity. Finally, we provide evidence for a low-volatility anomaly of the commodity market.
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