Order Flows and Financial Investor Impacts in Commodity Futures Markets

97 Pages Posted: 18 Apr 2018 Last revised: 11 Oct 2021

See all articles by Mark Ready

Mark Ready

University of Wisconsin Madison

Robert C. Ready

University of Oregon - Department of Finance; University of Oregon - Charles H. Lundquist School of Business

Date Written: October 30, 2019

Abstract

Using intraday data, we document a statistically strong, but temporary, association between commodity-index trader flows and commodity futures prices. Reexamining the positive returns associated with the issuance of commodity-linked notes documented by Henderson, Pearson, and Wang (2015), we find that these returns are too large to be explained by the small trades necessary to hedge these notes, and provide new evidence that they are instead the result of endogenous issuance. Our results provide novel support for commodity financialization, but highlight the importance of measuring the magnitude of financial investment, since even large financial flows have economically modest impacts on prices.

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

University of Oregon - Charles H. Lundquist School of Business ( email )

1208 University of Oregon
Eugene, OR 97403-1208
United States

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