The Financialization of Food?

50 Pages Posted: 17 Mar 2015 Last revised: 10 Feb 2016

Valentina Bruno

American University - Department of Finance and Real Estate

Bahattin Buyuksahin

Bank of Canada

Michel A. Robe

American University - Kogod School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2016

Abstract

Commodity-equity return co-movements rose dramatically during the Great Recession. This development took place following what has been dubbed the “financialization” of commodity markets. We first document changes since 1995 in the relative importance of financial institutions’ activity in agricultural futures markets. We then use a structural VAR model to ascertain the role of that activity in explaining correlations between weekly grain, livestock, and equity returns in 1995-2015. We provide robust evidence that, accounting for shocks which are idiosyncratic to agricultural markets, world business cycle shocks have a substantial and long-lasting impact on the latter’s co-movements with financial markets. In contrast, changes in the intensity of financial speculation have an impact on cross-market return linkages that is shorter-lived and not statistically significant in all model specifications.

Keywords: Financialization, Fundamentals, Grains, Livestock, Equities, Co-movements, ADCC, Structural VAR

JEL Classification: Q11, Q13, G12, G13

Suggested Citation

Bruno, Valentina and Buyuksahin, Bahattin and Robe, Michel A., The Financialization of Food? (February 1, 2016). Available at SSRN: https://ssrn.com/abstract=2323064 or http://dx.doi.org/10.2139/ssrn.2323064

Valentina Giulia Bruno

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

HOME PAGE: http://www.american.edu/kogod/faculty/bruno.cfm

Bahattin Buyuksahin

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Michel A. Robe (Contact Author)

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
202-885-1880 (Phone)
202-885-1946 (Fax)

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