Order Flows and Financial Investor Impacts in Commodity Futures Markets

94 Pages Posted: 18 Apr 2018 Last revised: 17 Aug 2021

See all articles by Mark Ready

Mark Ready

University of Wisconsin Madison

Robert C. Ready

University of Oregon - Department of Finance

Date Written: October 30, 2019

Abstract

We investigate the impacts of financial investors in commodity markets using intraday trade-and- quote data for commodity futures. We find strong evidence of order flows and price impacts in agricultural futures markets associated with changes in the positions of index traders reported by the CFTC. These order flows and price impacts are consistent with the magnitudes of the index flows, and are concentrated in the minutes just prior to daily futures settlement, when the price impact of order flow is generally lowest. While we confirm the positive returns around the issuance of commodity-linked notes documented by Henderson, Pearson, and Wang (2015), we find that these notes are an order of magnitude too small for the price impacts of hedging trades to explain these returns. We provide evidence that the positive returns are more consistent with CLN issuance responding to commodity prices rather than vice-versa.

Keywords: Commodity Markets, Futures, Order Flow, Financialization

JEL Classification: G12, G13, G14

Suggested Citation

Ready, Mark and Ready, Robert C., Order Flows and Financial Investor Impacts in Commodity Futures Markets (October 30, 2019). Available at SSRN: https://ssrn.com/abstract=3164757 or http://dx.doi.org/10.2139/ssrn.3164757

Mark Ready

University of Wisconsin Madison ( email )

5274B Grainger Hall
975 University Ave
Madison, WI 53706
United States
6082625226 (Phone)

Robert C. Ready (Contact Author)

University of Oregon - Department of Finance ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

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