In equity indices wala chapter, it is written that commodity index returns comes from there sources – Rf, change in future price and roll yield.
In Alt. Investment chapter, it is written that at sources of return on commodity futures is collateral yield, change in sport price and roll yield.
I am confused here.
Pls explain.
Hello,
The performance of commodity indexes can also be quite different from their underlying commodities because the indexes consist of futures contracts on the commodities rather than the actual commodities. Index returns are affected by factors other than changes in the prices of the underlying commodities because futures contracts must be continually “rolled over” (i.e., replacing a contract nearing expiration with a new contract). Commodity index returns reflect the risk-free interest rate, the changes in future prices, and the roll yield. Therefore, a commodity index return can be quite different from the return based on changes in the prices of the underlying commodities.
There are three sources of return for each commodity futures contract: the roll yield, the collateral yield, and the change in spot prices for the underlying commodity.