Food Financialization: Impact of Derivatives and Index Funds on Agri-Food Market Volatility

María del Rosario Venegas, Jorge Feregrino, Nelson Lay and Juan Felipe Espinosa-Cristia ()
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María del Rosario Venegas: FES Acatlán, Universidad Nacional Autónoma de México, Naucalpan de Juarez 53150, Mexico
Jorge Feregrino: FES Acatlán, Universidad Nacional Autónoma de México, Naucalpan de Juarez 53150, Mexico
Nelson Lay: Escuela de Psicología, Facultad Educación y Ciencias Sociales, Universidad Andres Bello, Santiago 7591538, Chile
Juan Felipe Espinosa-Cristia: Ecuela de Ingeniería Comercial, Departamento de Ingeniería Comercial, Universidad Técnica Federico Santa María, Valparaiso 2390123, Chile

IJFS, 2024, vol. 12, issue 4, 1-29

Abstract: This study explores the financialization of agricultural commodities, focusing on how financial derivatives and index funds impact the volatility of agro-food markets. Using a Dynamic Conditional Correlation (DCC) GARCH model, we analyze volatility spillovers among key agricultural commodities, particularly maize, and related financial assets over a sample period from 2007 to 2020. Our analysis includes major financial assets like Exchange-Traded Funds (ETFs), the S&P 500 index, and agribusiness corporations such as ADM and Bunge and the largest corn flour producer, GRUMA. The results indicate that financial speculation, especially via passive investments such as ETFs, has intensified price volatility in commodity futures, leading to a systemic risk increase within the sector. This study provides empirical evidence of increased market integration between the agro-food sector and financial markets, underscoring risks to food security and economic stability. We conclude with recommendations for regulatory actions to mitigate systemic risks posed by the growing financial influence in agricultural markets.

Keywords: financialization; agricultural commodities; price volatility; derivatives markets; index funds; agro-food sector; systemic risk; commodity futures markets (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2024
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