Sunshine vs. predatory trading effects in commodity futures markets: New evidence from index rebalancing

Lei Yan, Scott H. Irwin and Dwight R. Sanders

Journal of Commodity Markets, 2022, vol. 26, issue C

Abstract: Annual rebalancing of the S&P Goldman Sachs Commodity Index (S&P GSCI) provides a novel identification of the impact of predictable order flows from index investors in commodity futures markets. Using the 24 commodities included in the S&P GSCI for 2004–2019, we show that cumulative abnormal returns to a long-short strategy peaked at 72 basis points in the middle of the week following the rebalancing period, but the impact declines to near zero within the next week. The findings show that the impact of order flows from financial investors on commodity futures prices is modest and temporary, consistent with the prediction of sunshine trading theory.

Keywords: Commodity futures; Financialization; Index; Order flow; Rebalancing (search for similar items in EconPapers)
JEL-codes: G13 G14 G23 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:26:y:2022:i:c:s2405851321000295

DOI: 10.1016/j.jcomm.2021.100195

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