Effects of Index‐Fund Investing on Commodity Futures Prices

19 Pages Posted: 24 Jan 2015

See all articles by James D. Hamilton

James D. Hamilton

University of California at San Diego; National Bureau of Economic Research (NBER)

Jing Cynthia Wu

University of California

Multiple version iconThere are 3 versions of this paper

Date Written: February 2015

Abstract

We develop a simple model of futures arbitrage that implies that if purchases by commodity index funds influence futures prices, then the notional positions of the index investors should help predict excess returns in these contracts. We find no evidence that the positions of index traders in agricultural contracts as identified by the Commodity Futures Trading Commission can help predict returns on the near futures contracts. Although there is some support that these positions might help predict changes in oil futures prices over 2006–2009, the relation breaks down out of sample.

Suggested Citation

Hamilton, James D. and Wu, Jing Cynthia, Effects of Index‐Fund Investing on Commodity Futures Prices (February 2015). International Economic Review, Vol. 56, Issue 1, pp. 187-205, 2015. Available at SSRN: https://ssrn.com/abstract=2554767 or http://dx.doi.org/10.1111/iere.12099

James D. Hamilton (Contact Author)

University of California at San Diego ( email )

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National Bureau of Economic Research (NBER)

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Jing Cynthia Wu

University of California

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Davis, CA 95616
United States

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