The impact of financialization on the efficiency of commodity futures markets

Martin T. Bohl, Scott H. Irwin, Alexander Pütz and Christoph Sulewski

Journal of Commodity Markets, 2023, vol. 31, issue C

Abstract: The pronounced inflow of financial capital from index investors over the last 15 years and the accompanying substantial fluctuations in commodity futures markets have aroused public and academic interest. A common accusation made in this context is that commodity index traders (CITs) negatively influence the quality of commodity futures markets and keep them far from fundamentally justified price levels. In this paper, we focus on quantifying market efficiency, and investigate empirically the suggested effect of CITs over the period from 1999 to 2019 for 34 commodity futures markets. In contrast to recent studies, we find empirical evidence that the financialization positively affected the market efficiency of indexed commodity futures markets. Consistently, we observe that the degree of commodity index trader activity is associated with higher degrees of informational efficiency.

Keywords: Commodity financialization; Price informativeness; Index investing; Real economic effects (search for similar items in EconPapers)
JEL-codes: G14 Q02 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:31:y:2023:i:c:s240585132300020x

DOI: 10.1016/j.jcomm.2023.100330

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