Girardi, Daniele (2012): Do financial investors affect the price of wheat? Published in: PSL Quarterly Review , Vol. 65, No. 260 (20. March 2012)
Download (837kB) | Preview
It is widely debated whether financial speculation was a significant force behind recent food price fluctuations. As a matter of fact, during the 2000s agricultural commodity derivatives markets were flooded by a ‘wall of money’ coming from financial investors. In agricultural exchanges, the greatest part of this huge financial inflow came from index traders, i.e. financial actors that follow a passive strategy of tracking a commodity index. In this article I present new empirical evidence that supports the hypothesis that financial investments have affected wheat price dynamics in recent years. In particular, I focus on Hard Red Winter (HRW) wheat. Since 2007 HRW wheat price fluctuations have been positively related to US stock market returns and oil price movements. These correlations appear to be determined by commodity index traders, since both these relationships proved to be spurious, with the most tracked commodity index as the confounding variable.
|Item Type:||MPRA Paper|
|Original Title:||Do financial investors affect the price of wheat?|
|Keywords:||Agricultural Commodity Prices, Financialization, Commodity Futures Markets, Commodity Index Trading|
|Subjects:||Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture
G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing
|Depositing User:||Daniele Girardi|
|Date Deposited:||09. Oct 2012 20:07|
|Last Modified:||13. Feb 2013 10:33|
ANDREWS D.W.K. (2003), “Tests for Parameter Instability and Structural Change with Unknown Change Point: A Corrigendum”, Econometrica, vol. 71 n. 1, pp. 395-397.
BANK FOR INTERNATIONAL SETTLEMENTS (BIS) (2011), “OTC Derivatives Market Activity in the First Half of 2001”, available online at the URL http://www.bis.org/ publ/otc_hy1111.pdf.
BASU P. and GAVIN W.T. (2011), “What Explains the Growth in Commodity Derivatives?”, Federal Reserve Bank of St. Louis Review, vol. 93 n. 1, pp. 37-48.
BUYUKSAHIN B. and ROBE M.A. (2010), Speculators, Commodities and Cross-Market Linkages, available online at the URL http://ssrn.com/abstract=1707103
BUYUKSAHIN B. and ROBE M.A. (2011), Does ‘Paper Oil’ Matter? Energy Markets’ Financialization and Equity- Commodity Co-Movements, available online at the URL: http://ssrn.com/ abstract=1855264.
DE HOYOS R. and MEDVEDEV D. (2009), “Poverty Effects of Higher Food Prices”, World Bank Policy Research Working Paper, n. WPS4887.
FAO (2009), The State of Agricultural Commodity Markets, available online at the URL http://www.fao.org/docrep/012/i0854e/i0854e00.htm.
FAO (2011), Crop Prospects and Food Situation, No.4 - December 2011, available online at the URL http://www.fao.org/docrep/014/al983e/al983e00.pdf.
GILBERT C.L. (2010), “Speculative Influences on Commodity Futures Prices 2006-08”, UNCTAD Discussion Paper, n. 197.
GHOSH J. (2011), “Implications of Regulating Commodity Derivatives Markets in the USA and EU”, PSL Quarterly Review, vol. 64 n. 258, pp. 287-304.
HERNANDEZ M. and TORERO M. (2010), “Examining the Dynamic Relationship Between Spot and Future Prices of Agricultural Commodities”, IFPRI Discussion Paper, n. 988.
IATP (2011), Excessive Speculation in Agriculture Commodities, available online at the URL http://www.iatp.org/documents/excessive-speculation-in-agriculture-commodities.
IRWIN S.H., SANDERS D.R. and MERRIN R.P. (2009), “A Speculative Bubble in Commodity Futures Prices? Cross-Sectional Evidence ”, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management, 20- 21 April 2009, St. Louis, Missouri.
KANG T. and BRORSEN B.W. (1995), “Conditional Heteroskedasticity, Asymmetry, and Option Pricing”, The Journal of Futures Markets, vol. 15 n. 8, pp. 901-928.
KEYNES J.M. ( 1973), The General Theory of Employment, Interest and Money, London: Macmillan.
MASTERS M.W. and WHITE A.K. (2008), The Accidental Hunt Brothers: How Institutional Investors are Driving up Food and Energy Prices, available online at the URLhttp://accidentalhuntbrothers.com/ahbreports.zip.
MCLEOD A.I. and LI W.K. (1983), “Diagnostic Checking ARMA Time-Series Models Using Squared Residual Correlations”, Journal of Time-Series Analysis, vol. 4 n. 4, pp. 269-273.
TANG K. and XIONG W. (2010), “Index Investment and Financialization of Commodities”, NBER Working Paper, n. 16325.
TAYLOR S.J. (1985), “The Behavior of Futures Prices Over Time”, Applied Economics, vol. 17 n. 4, pp. 713-734.
UNCTAD (2011), Price Formation in Financialized Commodity Markets, available online at the URL http://www.unctad.org/en/docs/gds20111_en.pdf.
YANG S.R. and BRORSEN B.W. (1993), “Nonlinear Dynamics of Daily Futures Prices: Conditional Heteroskedasticity or Chaos?”, The Journal of Futures Markets, v