Basak, S and Pavlova, A (2016) A model of financialization of commodities. Journal of Finance, 71 (4). pp. 1511-1556. ISSN 0022-1082
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 |
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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: | 10 Nov 2024 02:38 |
URI: | https://lbsresearch.london.edu/id/eprint/516 |