The Financialization of Commodity Markets

36 Pages Posted: 6 Nov 2013 Last revised: 16 Nov 2013

Ing-Haw Cheng

Tuck School of Business at Dartmouth

Wei Xiong

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2013

Abstract

The large inflow of investment capital to commodity futures markets in the last decade has generated a heated debate about whether financialization distorts commodity prices. Rather than focusing on the opposing views concerning whether investment flows either did or did not cause a price bubble, we critically review academic studies through the perspective of how financial investors affect risk sharing and information discovery in commodity markets. We argue that financialization has substantially changed commodity markets through these mechanisms.

Keywords: futures speculation, financialization, hedging, oil prices, risk sharing, information discovery

JEL Classification: G10, G12, G13, G14, G20, E44

Suggested Citation

Cheng, Ing-Haw and Xiong, Wei, The Financialization of Commodity Markets (October 1, 2013). Available at SSRN: https://ssrn.com/abstract=2350243 or http://dx.doi.org/10.2139/ssrn.2350243

Ing-Haw Cheng (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

Wei Xiong

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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