Rising and Volatile Food Prices: Are Index Fund Investors to Blame?

45 Pages Posted: 15 Jun 2014

See all articles by Marcel Prokopczuk

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Lazaros Symeonidis

University of East Anglia (UEA) - Norwich Business School

Timo Verlaat

Zeppelin University

Date Written: January 14, 2014

Abstract

The recent sharp increase in the prices of primary food commodities has raised serious concerns of policy makers on the role of index funds in these food markets. In this paper, we employ a dataset on trading positions of index fund investors from the US Commodity Futures Trading Commission (CFTC), and analyze the relationship between index fund activity and food prices and their volatility. We focus on three major and liquid agricultural markets: corn, soybeans and wheat. We find little evidence that the positions of index fund investors can help explain changes in food prices. Instead, causality from food price changes to position changes appears to be much stronger. Furthermore, our findings suggest that index trader positions bear some predictive ability for volatility. This relationship is mainly concentrated on the 2006-2009 period that includes the recent financial crisis. Finally, we find that volatility decreases with the positions of index fund traders.

Keywords: Food prices, index funds, volatility, agricultural futures

JEL Classification: G10, G13, G28, Q14, Q18

Suggested Citation

Prokopczuk, Marcel and Symeonidis, Lazaros and Verlaat, Timo, Rising and Volatile Food Prices: Are Index Fund Investors to Blame? (January 14, 2014). Available at SSRN: https://ssrn.com/abstract=2450397 or http://dx.doi.org/10.2139/ssrn.2450397

Marcel Prokopczuk (Contact Author)

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Lazaros Symeonidis

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

Timo Verlaat

Zeppelin University ( email )

Am Seemooser Horn 20
Friedrichshafen, Lake Constance 88045
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
83
Abstract Views
1,858
rank
294,431
PlumX Metrics