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
July 22, 2013
There has been a heated debate over whether the flows of commodity index investors have affected commodity prices and returns. This paper examines the price impact of “financial” commodity investments using a novel dataset of Commodity-Linked Notes (CLNs). The investor flows into CLNs are passed through to the futures markets via CLN issuers’ hedge trades. These flows are plausibly exogenous to the contemporaneous and subsequent futures price movements, allowing identification of the flows’ price impact. They cause significant price changes in the underlying futures markets, providing direct evidence of the impact of “financial” investment on commodity futures prices.
Number of Pages in PDF File: 58
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: July 25, 2013
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