CHAPTER 19

Building and Back-Testing a Commodity Index

A hands-on lab in Excel and R

Opening question

“Can I build my own commodity index and test it honestly?”

In this chapter

The data a commodity index needs: contract prices, a roll calendar and a collateral rate
How a roll schedule moves the position from one contract month to the next
The excess return, step by step, with a worked example through a roll
Adding collateral interest to obtain the total return
Equal-weight and production-weight versions of a five-commodity basket, back-tested on simulated data
A compact index engine in R
Pitfalls specific to commodity back-tests
From back-test to published index: methodology, governance and publication

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This chapter is in the full book

Chapter 1 is free to read online. The full text of chapter 19 — with its tables, figures, worked examples and practice lab — is available in the complete edition of Commodity Investing: From Theory to Practice (Volume 2, NXW Investment Library).

Read Chapter 1 free Get the full book — [email protected]

Sections of this chapter

19.1 Why build your own index?

19.2 The data you need

19.3 Contract months and the roll calendar

19.4 Excess return, step by step

19.5 Adding collateral: the total return

19.6 A five-commodity basket

19.7 The engine in R

19.8 Pitfalls specific to commodity back-tests

19.9 From test to publication

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