Have Commodities Become a Financial Asset? Evidence from Ten Years of Financialization

39 Pages Posted: 12 Jul 2017 Last revised: 24 May 2018

See all articles by Zeno Adams

Zeno Adams

University of St. Gallen

Maria Kartsakli

University of St. Gallen - School of Finance

Date Written: May 2018

Abstract

The financialization of commodity markets over the last decade has changed the behavior of commodity prices in fundamental ways. In this paper, we uncover the gradual transformation of commodities from a physical to a financial asset. Although economic demand and supply factors continue to play an important role, recent indicators associated with financialization have emerged since 2008. We show that financial variables have become the main driving factors explaining the variation in commodity returns and volatility today. Our findings have important implications for portfolio analysis and for the effectiveness of hedging in commodity markets.

Keywords: Crude Oil, Financialization, R-Squared Decomposition

JEL Classification: Q40, Q41, G14

Suggested Citation

Adams, Zeno and Kartsakli, Maria, Have Commodities Become a Financial Asset? Evidence from Ten Years of Financialization (May 2018). University of St. Gallen, School of Finance Research Paper No. 2017/10. Available at SSRN: https://ssrn.com/abstract=2999717 or http://dx.doi.org/10.2139/ssrn.2999717

Zeno Adams (Contact Author)

University of St. Gallen ( email )

Bodanstrasse 6
St. Gallen, 9000
Switzerland

Maria Kartsakli

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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