Are Commodities a Good Investment? It Depends on the Country
In recent years, the diversification potential of commodities has come under scrutiny. While the majority of studies examining the role of commodities in a portfolio typically focus on U.S. investors or those dealing primarily with U.S. dollar-denominated assets, Dequiedt et al. (2023) offer a unique perspective by considering the viewpoint of domestic investors in a sample of 38 developed and emerging countries. The study explores the relationship between diversification benefits of commodities for local investors and country’s level of commodity risk exposure. Findings reveal that incorporating commodities tends to enhance the Sharpe ratio of the optimal domestic asset portfolios in most countries with low commodity dependence but doesn’t benefit highly commodity-dependent ones.