Articles

Commodities Sectors And The Business Cycle
By Geetesh Bhardwaj and Adam Dunsby

Page 5 of 5

References
Bhardwaj, Geetesh and Adam Dunsby, "How Many Commodity Sectors Are There, and How Do They Behave?" April 2012). Available at https://www.summerhavenindex
com/guest/materials.html

MSCI Barra research bulletin, "Sector Performance Across Business Cycles" November 2009.

Nilsson, Ronny and Emmanuelle Guidetti, "Current Period Performance of OECD Composite Leading Indicators (CLIs): Revision Analysis of CLIs for OECD Member Countries,"
OECD Statistics Working Paper, April 2007.

Endnotes

We continue to use the "softs" categorization, as it has become industry standard.
www.oecd.org/std/cli-ts. The OECD CLI has been used in a study of equity sectors and the business cycle in the MSCI Barra research bulletin, "Sector Performance Across Business Cycles," November 2009.
The OECD CLI is subject to revision: "Revisions are a natural phenomenon for the CLIs. In order to isolate cyclical patterns, component series have to pass through several filters (seasonal adjustment, outlier detection, de-trending, smoothing, normalization). All these filters operate on the whole time series and generate revisions of the CLIs." See Nilsson and Guidetti [2007] for a comprehensive analysis of the revision process and its impact on CLI data. They conclude: " . . . first and second estimates of the CLIs give early signals of approaching turning points which in most cases are not revised later." In our analysis, we do not account for historical revision of CLI.
CLI data is released during the second week of the month. February 2012 data was released on April 10, 2012. Current schedule for updates is available at: http://www.oecd.org/document/29/0,3746,en_2649_34349_1837341_1_1_1_1,00.html
An alternative methodology might be to invest in procyclical sectors if CLI is greater than 100, which by construction is the long-term mean of series. This "single path" methodology results in about 53 percent of months being categorized as expansionary. The resulting portfolio does better than three static portfolios, returning 9.0 percent annually, and achieving a Sharpe ratio of 0.53