Us Commodity Indices’ Diversification and Inflation Hedging Benefits : Evidence from Brazil

We analyze the impact of two leading international commodity indices (Bloomberg Commodity Index and S&P Goldman Sachs Commodity Index) on a Brazilian portfolio composed of stock index, government bond index, and inflation- linked government bond index. Our results show that international commodity indices provide dissimilar diversification and marginal inflation hedging benefits for Brazilian investors. Bloomberg commodity index renders strong diversification. In contrast, S&P Goldman Sachs Commodity Index only provides diversification benefits for fixed income investors. We conclude that international commodity indices’s benefits are highly dependent on the index composition and allocation