An analysis of the impact of the financialization of commodity markets

Ndawona, T; Keeton, Gavin R; Cattaneo, Nicolette S; Mann, L

Title: An analysis of the impact of the financialization of commodity markets
Creator: Ndawona, T
Creator: Keeton, Gavin R
Creator: Cattaneo, Nicolette S
Creator: Mann, L
Subject: To be catalogued
Date Issued: 2019
Date: 2019
Type: text
Type: article
Identifier: http://hdl.handle.net/10962/477865
Identifier: vital:78131
Identifier: https://hdl.handle.net/10520/EJC-16652e0142
Description: There is growing evidence that the dramatic increase in real commodity prices from 2002-2011 cannot be attributed solely to fundamental (demand and supply) factors. Over this period, there was major growth in the trading activities of financial investors in commodity derivative markets. This process, termed “financialization”, had important effects on price dynamics. This paper calculates rolling correlations for futures and spot returns for different commodities both for the period 2002-2011 when commodity prices were rising, and also from 2011-2015, when prices were falling. The paper finds a rise in correlations of index-based commodities during the period of rising prices, when commodity assets under management grew rapidly, and a fall during the period of declining prices, when commodity assets under management halved, supporting the view that financialization played a role in driving prices. This conclusion is reinforced by the finding that the same increase and decrease in correlations did not occur for bulk commodities. Granger causality tests reveal evidence of futures prices driving spot prices during the financialization period when prices were rising. However, there is a shift to more bi-directional relationships when prices (and correlations) fell. These findings support the role of financialization during the period of rising prices, as investor exposure to index-based commodities was usually achieved through the futures market.
Format: 32 pages
Format: pdf
Language: English
Relation: Studies in Economics and Econometrics
Relation: Ndawona, T., Keeton, G., Cattaneo, N. and Mann, L., 2019. An analysis of the impact of the financialization of commodity markets. Studies in Economics and Econometrics, 43(1), pp.63-95
Relation: Studies in Economics and Econometrics volume 43 number 1 63 95 2019 2693-5198
Rights: Publisher
Rights: Use of this resource is governed by the terms and conditions of the Sabinet Terms and Conditions Statement (https://www.sabinet.co.za/terms-conditions)

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Keeton, Gavin Rodney (Prof)

Cattaneo, Nicolette Sylvie (Ms)

RU Department of Economics and Economic History

SDG 08. Decent Work and Economic Growth

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