Evaluating a Trend-Following Commodity Index for Multi-Period Asset Allocation
Evaluating a Trend-Following Commodity Index for Multi-Period Asset Allocation
Abstract
The Mt. Lucas index provides a systematic approach for capturing a portion of the return of trend-following commodity traders. We analyze the Mt. Lucas Index across different historical periods, evaluating its performance within a multi-period asset allocation framework. Our results indicate that the index improves the overall return/risk characteristics of the multi-period asset
allocation model. We show that the total return consists of: 1) T-Bill returns on marginable assets, 2) static returns from trendfollowing futures markets, and 3) rebalancing gains. The importance of the third element is emphasized
Source: http://docs.edhec-risk.com/EID-2008-Doc/documents/Evaluating_Trend-Following_Commodity_Index.pdf
