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

35 Pages Posted: 4 Nov 2019

See all articles by Brian J. Henderson

Brian J. Henderson

George Washington University - Department of Finance

Neil D. Pearson

University of Illinois at Urbana-Champaign - Department of Finance

Li Wang

Case Western Reserve University

Date Written: October 24, 2019

Abstract

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

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

Brian Joseph Henderson

George Washington University - Department of Finance ( email )

Department of Finance, Funger Hall
2201 G Street, NW
Washington, DC 20052
United States
202-994-3669 (Phone)

Neil D. Pearson (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-0490 (Phone)
217-244-9867 (Fax)

Li Wang

Case Western Reserve University ( email )

Weatherhead School of Management,
Case Western Reserve University
Cleveland, OH 44106
United States

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