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http://ssrn.com/abstract=1855264
 
 

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


Bahattin Buyuksahin


Bank of Canada

Michel A. Robe


American University - Kogod School of Business

July 28, 2011


Abstract:     
We construct a uniquely detailed, comprehensive dataset of trader positions in U.S. energy futures markets. We find considerable changes in the make-up of the open interest between 2000 and 2010 and show that these changes impact asset pricing. Specifically, dynamic conditional correlations between the rates of return on investable energy and stock market indices increase significantly amid greater activity by speculators in general and hedge funds in particular (especially funds active in both equity and energy markets). The impact of hedge fund activity is markedly lower in periods of financial market stress. Our results support the notion that the composition of trading activity in futures markets helps explain an important aspect of the distribution of energy returns, and have ramifications in the debate on the financialization of energy markets.

Number of Pages in PDF File: 53

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Date posted: May 30, 2011 ; Last revised: July 31, 2011

Suggested Citation

Buyuksahin, Bahattin and Robe, Michel A., Does 'Paper Oil' Matter? Energy Markets’ Financialization and Equity-Commodity Co-Movements (July 28, 2011). Available at SSRN: http://ssrn.com/abstract=1855264 or http://dx.doi.org/10.2139/ssrn.1855264

Contact Information

Bahattin Buyuksahin
Bank of Canada ( email )
234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada
Michel A. Robe (Contact Author)
American University - Kogod School of Business ( email )
4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
202-885-1880 (Phone)
202-885-1946 (Fax)
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