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Title:You can't squeeze blood out of a turnip: misconceptions of commodity investments and their disappointing returns
Author(s):Main, Scott
Advisor(s):Irwin, Scott H.
Department / Program:Agriculture and Consumer Economics
Discipline:Agricultural & Applied Economics
Degree Granting Institution:University of Illinois at Urbana-Champaign
Degree:M.S.
Genre:Thesis
Subject(s):Commodities
Futures
Term Structure
Returns
Investments
Capital Markets
Contango
Backwardation
Roll Yield
Abstract:This thesis examines questions about long-only commodity investment performance compared to underlying commodity performance. Recent returns have been nothing short of disappointing to investors. A divergence in price has developed between some commodity funds and the observed price of the underlying commodities. Previous studies suggest these differences are caused by a specific scenario within the futures market where the slope of the term structure is positive and holders of futures must roll futures to a higher priced future contract. The explanation herein dispels these conclusions and finds that the main driver of returns to futures is a premium associated with a commodity market. This evidence is presented both graphically and mathematically through a decomposition of the futures returns. Furthermore, this study uses historical returns to demonstrate that returns to static long commodity investments are not likely to generate the investment returns widely expected in recent years.
Issue Date:2014-01-16
URI:http://hdl.handle.net/2142/46619
Rights Information:Copyright 2013 Scott Main
Date Available in IDEALS:2014-01-16
Date Deposited:2013-12


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