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The Journal of Portfolio Management

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Primary Article

Tactical Asset Allocation and Commodity Futures

Gerald R. Jensen, Robert R. Johnson and Jeffrey M. Mercer
The Journal of Portfolio Management Summer 2002, 28 (4) 100-111; DOI: https://doi.org/10.3905/jpm.2002.319859
Gerald R. Jensen
A professor of finance at Northern Illinois University in DeKalb(IL 60115).
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  • For correspondence: gjensen@niu.edu
Robert R. Johnson
A senior vice president at the Association for Investment Management and Research in Charlottesville (VA 22903).
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  • For correspondence: rrj@aimr.org
Jeffrey M. Mercer
An associate professor of finance at Rawls College of Business Administration of Texas Tech University in Lubbock (TX79409).
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  • For correspondence: jmercer@ba.ttu.edu
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Abstract

In this article the authors examine the diversification benefits of adding managed and unmanaged commodity futures to a traditional portfolio that consists of U.S. equities, foreign equities, corporate bonds, and Treasury bills from 1973 through 1999. Consistent with previous evidence, they find that commodity futures substantially enhance portfolio performance for investors, and managed futures provide the greatest benefit. They show that the benefits of adding commodity futures (both managed and unmanaged) accrue almost exclusively when the Federal Reserve is following a restrictive monetary policy. The results suggest that metals and agricultural futures contracts offer the most diversification benefits for investors. Overall, the findings indicate that investors should gauge monetary conditions to determine the optimal allocation of commodity futures within a portfolio, and whether a short or a long position should be established in a particular type of contract.

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The Journal of Portfolio Management
Vol. 28, Issue 4
Summer 2002
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Tactical Asset Allocation and Commodity Futures
Gerald R. Jensen, Robert R. Johnson, Jeffrey M. Mercer
The Journal of Portfolio Management Jul 2002, 28 (4) 100-111; DOI: 10.3905/jpm.2002.319859

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Tactical Asset Allocation and Commodity Futures
Gerald R. Jensen, Robert R. Johnson, Jeffrey M. Mercer
The Journal of Portfolio Management Jul 2002, 28 (4) 100-111; DOI: 10.3905/jpm.2002.319859
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