1998 Fiscal Year Final Research Report Summary
THEORETICAL AND EMPIRICAL INVESTIGATION OF MANAGED FUTURES
| Project/Area Number |
09630116
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| Research Category |
Grant-in-Aid for Scientific Research (C)
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| Allocation Type | Single-year Grants |
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| Section | 一般 |
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| Research Field |
Business administration
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| Research Institution | KOBE UNIVERSITY |
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Principal Investigator |
SAKAKIBARA Shigeki KOBE UNIVERSITY FACULTY OF BUSINESS PROFESSOR, 経営学部, 教授 (10030719)
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| Project Period (FY) |
1997 – 1998
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| Keywords | Commodity Funds / Managed Futures / Commodity Trading Advisor / Public Futures Funds / Private Commodity Pools / Sharpe Ratio |
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| Research Abstract |
Managed futures refers to professionally managed investments in derivative instruments (futures, forward contracts, and options) in the commodity and financial markets. Investments in managed futures are accomplished through commodity trading advisors, private commodity pools, and public commodity funds.
Is this emerging asset class a good investment? In order to solve this question, researchers address the following main issues of investment performance.
(1) risk-return characteristics of managed futures
(2) performance as a stand-alone investment
(3) the effectiveness in portfolio diversification
(4) the improvement of Sharpe ratio after and before inclusion of managed futures in traditional asset portfolio
The answer to these questions is mixed. The difference between the studies which found inferior performance and the studies which found favorable performance comes from the methodology used, the time period selected, and the category of managed futures analyzed-commodity trading advisor
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s (CTA), private commodity pools, and public commodity funds.
Without exception, all researchers found managed futures products to have higher variability (as measured by variance or standard deviation) than stock, bonds or T-bills. The question then becomes whether returns were high enough to justify this high risk. If Sharpe ratio of managed futures is higher than that of traditional asset class such as stock, bond and T-bills, managed futures as a stand-alone investment is a good investment vehicle.
The equally weighted portfolio of sample managed futures outperformed the randomly selected managed futures, but did not outperform stock or bond with a few exceptions.
According to Markowitz's theory of portfolio selection, a managed futures investment can enhance portfolio performance if there is no, or small correlation with traditional asset class. In fact, the inclusion of CTAs and Private pools in stock and/or bond portfolio shifts the efficient frontier upward and/or to the left, and improves Sharpe ratio, but public future funds do not. Less
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