Speculators, commodities and cross-market linkages
Bahattin Buyuksahin () and
Michel Robe ()
Journal of International Money and Finance, 2014, vol. 42, issue C, 38-70
We use a unique, non-public dataset of trader positions in 17 U.S. commodity futures markets to provide novel evidence on those markets' financialization in the past decade. We then show that the correlation between the rates of return on investible commodity and equity indices rises amid greater participation by speculators generally, hedge funds especially, and hedge funds that hold positions in both equity and commodity futures markets in particular. We find no such relationship for commodity swap dealers, including index traders (CITs). The predictive power of hedge fund positions is weaker in periods of generalized financial market stress. Our results support the notion that who trades helps predict the joint distribution of commodity and equity returns. We find qualitatively similar but statistically weaker results using a proxy for hedge fund activity based on publicly available data.
Keywords: Financialization; Cross-market linkages; Commodities; Equities; Hedge funds; Index funds; Commodity index traders; Dynamic conditional correlations (DCCs) (search for similar items in EconPapers)
JEL-codes: G10 G12 G13 G23 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:42:y:2014:i:c:p:38-70
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