Do Commodity Index Traders Destabilize Agricultural Futures Prices?

Martin T. Bohl, Farrukh Javed and Patrick M. Stephan

Applied Economics Quarterly (formerly: Konjunkturpolitik), 2013, vol. 59, issue 2, 125-148

Abstract: Motivated by repeated price spikes and crashes over the last decade, we investigate whether the intensive investment activities of commodity index traders (CITs) have destabilized agricultural futures markets. Using a stochastic volatility model, we treat conditional volatility as an unobserved component, and analyze whether it has been affected by the expected and unexpected open interest of CITs. However, with respect to twelve increasingly financialized grain, livestock, and soft commodities, we do not find robust evidence that this is the case. We thus conclude that justifying a tighter regulation of CITs by blaming them for more volatile agricultural futures markets appears to be unwarranted.

Keywords: commodity index traders; futures prices; agricultural markets (search for similar items in EconPapers)
JEL-codes: G10 G18 Q14 (search for similar items in EconPapers)
Date: 2013
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