Dynamic Portfolio Management including Commodities Futures in India: Evidence of DCC-GARCH Model

Abstract

This paper examines the performance of commodities as an alternative investment asset class in India using time varying volatility and dynamic conditional correlation measures. We have optimized weekly performance of portfolios including both financial assets and commodities. Using DCC-GARCH model, this paper estimates time varying volatility and dynamic conditional correlations for portfolio selection and optimization processes. We find that risk-adjusted returns are maximum when commodity is included in a portfolio. Our findings suggest that commodities act as an investment class in India, provide diversification benefits and enhance risk-adjusted return in a portfolio.