The Financialization of Commodity Futures Markets or: How I Learned to Stop Worrying and Love the Index Funds

53 Pages Posted: 30 Oct 2010

See all articles by Scott H. Irwin

Scott H. Irwin

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

Dwight R. Sanders

Southern Illinois University at Carbondale - Agribusiness Economics

Date Written: October 29, 2010

Abstract

Many believe that index fund investment was the main driver of the 2007-2008 spike in commodity futures prices. One group of empirical studies finds evidence that commodity index investment directly or indirectly had a substantial impact on commodity futures prices. However, the data and methods used in these studies are subject to a number of important criticisms that limit the degree of confidence one can place in the results. Another group of studies provide no systematic evidence of a relationship between on- and off-exchange positions of index funds and the level of commodity futures prices. Overall, the evidence implies that index funds did not harm price discovery in commodity futures markets.

Keywords: Index Funds, Commodity, Futures Markets, Prices, Speculation, Bubble

JEL Classification: D84, G12, G13, G14, Q13, Q41

Suggested Citation

Irwin, Scott H. and Sanders, Dwight R., The Financialization of Commodity Futures Markets or: How I Learned to Stop Worrying and Love the Index Funds (October 29, 2010). Available at SSRN: https://ssrn.com/abstract=1699793 or http://dx.doi.org/10.2139/ssrn.1699793

Scott H. Irwin (Contact Author)

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics ( email )

1301 W. Gregory Drive
326 Mumford Hall, MC-710
Urbana, IL 61801
United States

Dwight R. Sanders

Southern Illinois University at Carbondale - Agribusiness Economics ( email )

Carbondale, IL 62901-4515
United States
618-453-1711 (Phone)

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