Financialization and commodity prices – an empirical analysis for coffee, cotton, wheat and oil
International Review of Applied Economics Volume 30, 2016 - Issue 4Stefan Ederer / Christine Heumesser / Cornelia Staritz
Commodity prices have crucial implications for developing countries. The question whether the financialization of commodity derivative markets has contributed to high and volatile commodity prices has been controversially debated. Building on limitations in the empirical literature, we estimate a multivariate Vector Autoregressive (VAR) model to assess the effect of different groups of financial investors (index investors and money managers) as well as fundamental and macroeconomic variables on the prices of coffee, cotton, wheat and oil. We find that, in contrast to index investors, money managers’ net long positions have a large statistically significant effect on commodity prices. This calls for policy interventions as commodity derivative markets may cease to perform their fundamental developmental roles.
In: International Review of Applied Economics. 30(4), 462-487.