A model of financialization of commodities

Basak, S and Pavlova, A (2016) A model of financialization of commodities. Journal of Finance, 71 (4). pp. 1511-1556. ISSN 0022-1082 OPEN ACCESS

Abstract

We analyze how institutional investors entering commodity futures markets, referred to as the financialization of commodities, affect commodity prices. Institutional investors care about their performance relative to a commodity index. We find that all commodity futures prices, volatilities, and correlations go up with financialization, but more so for index futures than for nonindex futures. The equity-commodity correlations also increase. We demonstrate how financial markets transmit shocks not only to futures prices but also to commodity spot prices and inventories. Spot prices go up with financialization, and shocks to any index commodity spill over to all storable commodity prices.

More Details

Item Type: Article
Subject Areas: Finance
Additional Information:

© 2016 the American Finance Association. Funded by European Research Council Grant Number: StG263312

Funder Name: European Research Council
Date Deposited: 18 Jul 2016 14:49
Date of first compliant deposit: 18 Jul 2016
Subjects: Commodity futures markets
Assets
Price theory
Last Modified: 14 Oct 2024 01:42
URI: https://lbsresearch.london.edu/id/eprint/516
More

Export and Share


Download

Accepted Version - Text
Supplemental Material - Text

Statistics

Altmetrics
View details on Dimensions' website

Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item