Financialization in Commodity Markets
NBER Working Paper No. 23766
Recent experience has given rise to the financialization view: increased trading in commodity futures markets leads to an increase in the level and volatility of spot prices. We construct a large panel data set which includes commodities with and without futures markets. The data do not support the financialization view. We also find that futures returns are positively correlated with open interest and not correlated with net financial flows. The facts on spot and futures prices and volume necessitate a new view, which we develop, of the economic role of futures markets. Our model is consistent with the key facts.
Document Object Identifier (DOI): 10.3386/w23766
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