Does 'Paper Oil' Matter? Energy Markets’ Financialization and Equity-Commodity Co-Movements

49 Pages Posted: 30 May 2011 Last revised: 25 Feb 2022

See all articles by Bahattin Buyuksahin

Bahattin Buyuksahin

CoMeX Consulting and Advising

Michel A. Robe

University of Richmond - E. Claiborne Robins School of Business

Date Written: December 30, 2021

Abstract

We document new facts regarding the financialization of U.S. energy futures markets between 2000 and 2010. We use this information to show that, after controlling for macroeconomic and energy-market fundamentals, co-movements between energy and stock markets increase significantly amid greater energy paper-market activity by hedge funds—especially funds that are active in both equity and energy markets. The connection to hedge fund activity weakens at time of financial market stress. We find, in contrast, no link between the strength of energy-equity market return correlations and the positions of commodity index traders. Our results have implications for the ongoing debate about the financialization of commodity markets.

Keywords: Financialization, Energy-equity return correlations, Market co-movements, DCC

JEL Classification: Q40, Q43, G10, G12, G13, G23

Suggested Citation

Buyuksahin, Bahattin and Robe, Michel A., Does 'Paper Oil' Matter? Energy Markets’ Financialization and Equity-Commodity Co-Movements (December 30, 2021). Available at SSRN: https://ssrn.com/abstract=1855264 or http://dx.doi.org/10.2139/ssrn.1855264

Bahattin Buyuksahin

CoMeX Consulting and Advising ( email )

Washington, DC
United States
2022904253 (Phone)

Michel A. Robe (Contact Author)

University of Richmond - E. Claiborne Robins School of Business ( email )

Richmond, VA 23173
United States

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