Advanced

Do Commodity Index Traders Destabilize Agricultural Futures Prices?

Bohl, Martin; Javed, Farrukh LU and Stephan, Patrick (2013) In Applied Economics Quarterly
Abstract
Motivated by repeated price spikes and crashes over the last decade, we investigate whether the intensive investment activities of commodity index traders(CITs) have destabilized agricultural futures markets. Using a stochastic volatility model, we treat conditional volatility as an unobserved component, and analyze whether it has been affected by the expected and unexpected open interest of CITs. However, with respect to twelve increasingly financialized grain, livestock, and soft commodities, we do not find robust evidence that this is the case. We thus conclude that justifying a tighter regulation of CITs by blaming them for more volatile agricultural futures markets appears to be unwarranted.
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to specialist publication or newspaper
publication status
in press
subject
keywords
Commodity Index Traders, Futures Prices, Agricultural Markets
categories
Popular Science
in
Applied Economics Quarterly
ISSN
1611-6607
language
English
LU publication?
yes
id
9b042424-d601-4f36-a940-0f58e64aca3d (old id 3172531)
date added to LUP
2013-01-23 15:20:35
date last changed
2016-04-16 06:50:45
@misc{9b042424-d601-4f36-a940-0f58e64aca3d,
  abstract     = {Motivated by repeated price spikes and crashes over the last decade, we investigate whether the intensive investment activities of commodity index traders(CITs) have destabilized agricultural futures markets. Using a stochastic volatility model, we treat conditional volatility as an unobserved component, and analyze whether it has been affected by the expected and unexpected open interest of CITs. However, with respect to twelve increasingly financialized grain, livestock, and soft commodities, we do not find robust evidence that this is the case. We thus conclude that justifying a tighter regulation of CITs by blaming them for more volatile agricultural futures markets appears to be unwarranted.},
  author       = {Bohl, Martin and Javed, Farrukh and Stephan, Patrick},
  issn         = {1611-6607},
  keyword      = {Commodity Index Traders,Futures Prices,Agricultural Markets},
  language     = {eng},
  series       = {Applied Economics Quarterly},
  title        = {Do Commodity Index Traders Destabilize Agricultural Futures Prices?},
  year         = {2013},
}