Effects of Index-Fund Investing on Commodity Futures Prices
43 Pages Posted: 6 Sep 2013 Last revised: 22 Jul 2014
There are 2 versions of this paper
Effects of Index-Fund Investing on Commodity Futures Prices
Effects of Index-Fund Investing on Commodity Futures Prices
Date Written: December 26, 2013
Abstract
The last decade brought substantial increased participation in commodity markets by index funds that maintain long positions in the near futures contracts. Policy makers and academic studies have reached sharply different conclusions about the effects of these funds on commodity futures prices. This paper proposes a unifying framework for examining this question, noting that according to a simple model of futures arbitrage, if index-fund buying influences prices by changing the risk premium, then the notional positions of the index investors should help predict excess returns in these contracts. We find no evidence that the positions of traders in agricultural contracts identified by the CFTC as following an index strategy can help predict returns on the near futures contracts. We review evidence that these positions might help predict changes in oil futures prices, and find that while there is some support for this in the earlier data, this appears to be driven by some of the dramatic features of the 2007-2009 recession, with the relation breaking down out of sample.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Tactical and Strategic Value of Commodity Futures
By Claude B. Erb and Campbell R. Harvey
-
The Tactical and Strategic Value of Commodity Futures
By Claude B. Erb and Campbell R. Harvey
-
The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability
-
The Fundamentals of Commodity Futures Returns
By Gary B. Gorton, Fumio Hayashi, ...
-
The Fundamentals of Commodity Futures Returns
By Gary B. Gorton, Fumio Hayashi, ...
-
Momentum Strategies in Commodity Futures Markets
By Joëlle Miffre and Georgios Rallis