Analysis of Commodity Indices: Benefits, Challenges, and Financialization Impact

Commodity indices are important investment tools that track the performance of various commodities in the market, serving as benchmarks for investors and portfolio managers. Consider a diversified commodity index that comprises a range of commodities including energy, metals, and agriculture. Discuss the primary benefits and challenges associated with investing in commodity indices, specifically focusing on how these factors influence portfolio diversification and risk management. Additionally, analyze the impact of financialization on commodity indices and what implications this might have for investors. Support your analysis with relevant examples from existing commodity indices and empirical data.