Response to 'Order Flows and Financial Investor Impacts in Commodity Futures Markets'

Financial institutions that issue commodity-linked notes hedge their liabilities by buying commodity futures. Henderson, Pearson and Wang (2015) show that these futures trades impact commodity futures prices and interpret this as evidence that uninformed financial flows into the commodity markets impact commodity prices. Ready and Ready (2019) criticize the analysis and conclusions in Henderson, Pearson and Wang (2015) and instead conclude that there is no evidence that the uninformed financial flows of CLN hedging trades impact commodity prices. This note explains why the analysis, criticisms, and conclusions in Ready and Ready (2019) are incorrect.

Keywords: Commodities, Futures, Order flow, Financialization

JEL Classification: G13, G14, G23

Suggested Citation: Suggested Citation

Henderson, Brian Joseph and Pearson, Neil D. and Wang, Li, Response to 'Order Flows and Financial Investor Impacts in Commodity Futures Markets' (October 24, 2019). Available at SSRN: https://ssrn.com/abstract=3475065 or http://dx.doi.org/10.2139/ssrn.3475065