SSRN-Facts and Fantasies about Commodity Futures by K. Rouwenhorst, Gary Gorton
If you talk to most investors, they consider investments as only stocks and bonds. However, other assets should also be considered. For example real estate and commodities can be very useful as ways of reducing risk.
Why are commodities so important? They play an important role in diversifying a portfolio. For instance, Rouwenhorst and Gorton find that "While the risk premium on commodity futures is essentially the same as equities, commodity futures returns are negatively correlated with equity returns and bond returns."
Which of course is ideal from a diversification perspective! :)
Rouwenhorst, K. Geert and Gorton, Gary B., "Facts and Fantasies about Commodity Futures" (June 14, 2004). Yale ICF Working Paper No. 04-20. http://ssrn.com/abstract=560042
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