A brief essay on the financialization of agricultural commodity markets

Girardi, Daniele (2012): A brief essay on the financialization of agricultural commodity markets.

Abstract

During the 2000s agricultural commodity derivatives markets were flooded by a “wall of money” coming from financial investors. In this essay I outline the main facts about the increasing presence and impact of financial investors in agricultural commodity markets and I discuss the main empirical works that tried to assess whether financial investors have affected agricultural prices in recent years.

• Item Type: MPRA Paper
• Language: English
• Keywords: Agricultural Commodity Markets, Financialization, Financial Speculation, Food Crisis, Agricultural Commodities, Commodity Futures Markets
• Subjects: G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture

References

Bank For International Settlements (2011), ‘OTC derivatives market activity in the first half of 2001’, Available at: http://www.bis.org/publ/otc_hy1111.pdf (Accessed June 2012)

Basu P., Gavin T.W. (2011) ‘What explains the growth in commodity derivatives?’ Federal Reserve Bank of St.Louis Review, 93, 37-84

Borin A., Di Nino V. (2012), ‘The role of financial investments in agricultural commodity derivatives markets’ Banca d’Italia Working Paper No.849

Buyuksahin B., Robe M.A. (2010) ‘Speculators, commodities and cross-market linkages’. Available at: http://ssrn.com/abstract=1707103 (Accessed June 2012)

Buyuksahin B., Robe M.A. (2011) ‘Does paper oil matter? Energy markets’ financialization and equity-commodity co-movements’ Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1855264 (Accessed June 2012)

Gilbert C.L. (2009) ‘Speculative influences on commodity futures prices 2006-08’. Unctad discussion paper No.197

Girardi D. (2012) ‘Do financial investors affect the price of wheat?’, PSL Quarterly Review, vol. 65 n. 260, pp. 79-109.

Girardi D. (2012b) ‘Increasing correlation of agricultural prices with stock market returns and oil prices: did financial investors play a role?’ unpublished manuscript

Goldman Sachs & Co. (2004) ‘The case for commodities as an asset class’. Available at: http://www.authorstream.com/Presentation/Janelle-63469-GSCI-Strategic-June-2004-Executive-SummaryGSCI-Portfolio-Diversifier-Enhancer-Estimated-Education-ppt-powerpoint/ (Accessed June 2012)

Gorton G., Rouwenhorst K.G., (2004) ‘Facts and fantasies about commodity futures’, Financial Analysts Journal, March/April 2006, 62(2), pp.47-68

Gosh J. (2011) ‘Implications of regulating commodity derivatives markets in the USA and EU’. PSL Quarterly Review, vol.64 no.258, 287-304

Hamilton J.D. and Wu J.C. (2012) ‘Effects of index-fund investing on commodity futures prices’, Working Paper, University of Chicago Booth School of Business, Available at: http://dss.ucsd.edu/~jhamilto/commodity_index.pdf (Accessed June 2012)

Hernandez M., Torero M. (2010) ‘Examining the dynamic relationship between spot and futures prices of agricultural commodities’. Ifpri discussion paper No.988

Iatp (2011) ‘Excessive speculation in agriculture commodities’. Available at http://www.iatp.org

Irwin S.H, Sanders D.R., Merrin R.P. (2009) ‘A speculative bubble in commodity futures prices? Cross-sectional evidence’, in Proceedings of the NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management

Keynes J.M. ([1936] 1973) ‘The general theory of employment, interest and money’. Macmillan, London

Kindleberger, C. (1978) ‘Manias, Panics and Crashes’, Macmillan, London

Masters M.W. and White A.K. (2008) ‘The accidental hunt brothers: how institutional investors are driving up food and energy prices’. Available at http://accidentalhuntbrothers.com/ahbreports.zip (Accessed September 2012)

Singleton K. J. (2011) ‘Investor flows and the 2008 Boom/Bust in oil prices’, Working Paper, Stanford University, Available at: ssrn.com/abstract=1793449 (Accessed June 2012)

Tang K., Xiong W. (2010), ‘Index investment and financialization of commodities’. NBER Working Paper No.16325

Unctad (2011) ‘Price formation in financialized commodity markets'. Available at http://www.unctad.org/en/docs/gds20111_en.pdf (Accessed June 2012)