COMMODITY PRICE UNCERTAINTY AND OPTIMAL ASSET CHOICE

By explicitly deriving investor utility from underlying consumption preferences, asset choice in the presence of stochastically fluctuating commodity prices is examined. In contrast to the standard claim, a logarithmic utility function is shown to be necessary, but not sufficient, for the separation of asset choice from commodity price behavior when all prices are random. If some prices are deterministic, then a logarithmic utility function is neither necessary nor sufficient, but risk-neutral investor choices can be independent of commodity price fluctuations. © 1990.