Mapping Algorithms, Agricultural Futures, and the Relationship Between Commodity Investment Flows and Crude Oil Futures Prices

Posted: 25 Apr 2019 Last revised: 6 May 2020

See all articles by Lei Yan

Lei Yan

University of Illinois at Urbana-Champaign

Scott H. Irwin

University of Illinois at Urbana-Champaign

Dwight R. Sanders

Southern Illinois University at Carbondale - Agribusiness Economics

Date Written: 2018

Abstract

Several studies employ mapping algorithms to infer index positions in WTI crude oil futures from positions in agricultural futures and report an economically large and statistically significant impact of index positions on crude oil futures prices. In this article, we provide direct evidence that the apparent impact of index investment based on mapping algorithms is spurious. Specifically, an idiosyncratic spike in agricultural index positions during 2007–08, coupled with the spike in oil prices, causes the spurious impact of index investment on crude oil futures prices found in these earlier studies.

Keywords: Commodity futures, Crude oil, Index investment, Mapping algorithm

JEL Classification: D84, G13, Q13, Q41

Suggested Citation

Yan, Lei and Irwin, Scott and Sanders, Dwight R., Mapping Algorithms, Agricultural Futures, and the Relationship Between Commodity Investment Flows and Crude Oil Futures Prices (2018). Energy Economics, Vol. 72:486-504, 2018, Available at SSRN: https://ssrn.com/abstract=3360785

Lei Yan (Contact Author)

University of Illinois at Urbana-Champaign

601 E John St
Champaign, IL 61820
United States

Scott Irwin

University of Illinois at Urbana-Champaign ( email )

344 Mumford Hall
1301 W. Gregory Dr.
Urbana, IL 61801
United States
217-333-6087 (Phone)

HOME PAGE: http://https://scotthirwin.com/

Dwight R. Sanders

Southern Illinois University at Carbondale - Agribusiness Economics ( email )

Carbondale, IL 62901-4515
United States
618-453-1711 (Phone)

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