New Evidence on the Financialization of Commodity Markets

44 Pages Posted: 25 Jan 2012 Last revised: 19 Nov 2014

Brian J. Henderson

George Washington University - Department of Finance

Neil D. Pearson

University of Illinois at Urbana-Champaign - Department of Finance

Li Wang

Case Western Reserve University

Date Written: November 18, 2014

Abstract

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. Investor flows into and out of CLNs are passed to and withdrawn from the futures markets via issuers’ trades to hedge their CLN liabilities. The flows are not based on information about 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but nonetheless cause increases and decreases in commodity futures prices when they are passed through to and withdrawn from the futures markets. These findings are consistent with the hypothesis that non-information based financial investments have important impacts on commodity prices.

Keywords: financialization, commodity-linked notes, commodity structured products, commodity index investors, commodity futures

JEL Classification: G13, G14, G18

Suggested Citation

Henderson, Brian J. and Pearson, Neil D. and Wang, Li, New Evidence on the Financialization of Commodity Markets (November 18, 2014). Available at SSRN: https://ssrn.com/abstract=1990828 or http://dx.doi.org/10.2139/ssrn.1990828

Brian Joseph Henderson

George Washington University - Department of Finance ( email )

Department of Finance, Funger Hall
2201 G Street, NW
Washington, DC 20052
United States
202-994-3669 (Phone)

Neil D. Pearson (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-0490 (Phone)
217-244-9867 (Fax)

Li Wang

Case Western Reserve University ( email )

Weatherhead School of Management,
Case Western Reserve University
Cleveland, OH 44106
United States

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