New Evidence on the Financialization of Commodity Markets
Brian J. Henderson
George Washington University - Department of Finance
Neil D. Pearson
University of Illinois at Urbana-Champaign - Department of Finance
University of Illinois at Urbana-Champaign
August 20, 2014
This paper uses a novel dataset of Commodity-Linked Notes (CLNs) to examine the impact of the flows of financial investors on commodity futures prices. The investor flows into and out of CLNs are passed through to and withdrawn from the futures markets via CLN issuers’ hedge trades. The flows are not based on information about the contemporaneous and subsequent futures price movements, but nonetheless cause increases and decreases in commodity futures prices when they are passed through to and withdrawn from the futures markets, respectively. These finding are consistent with the hypothesis that non-information based financial investments have important impacts on commodity prices.
Number of Pages in PDF File: 42
Keywords: financialization, commodity-linked notes, commodity structured products, commodity index investors, commodity futures
JEL Classification: G13, G14, G18working papers series
Date posted: January 25, 2012 ; Last revised: August 21, 2014
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