Abstract
Institutional investors, especially pension funds, often obtain commodity exposures by investing in commodity futures. But while investment in any asset class requires appropriate benchmarks for performance measurement and return attribution, the proper criteria for investment strategies based on commodity futures are just beginning to emerge. In <b><i>Factor Model Index for Commodity Investment</i></b>, from the Winter 2021 issue of <b><i>The Journal of Index Investing</i></b>, authors <b>Daniel Broby</b> of <b>Ulster University</b>, <b>Andrew McKenzie</b> of the <b>University of Arkansas</b>, and <b>Olivier Bauthéac</b> of <b>Strathclyde Business School</b> propose an approach for constructing a factor model index for commodities that is replicable and investable. They contend that factor model indexes (FMIs) can be substituted for existing production-based indexes that utilize futures contracts. The technique allows commodity investors to construct an optimal portfolio and measure investment performance more accurately.
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