Economics at your fingertips  

Commodities as Collateral

Ke Tang () and Haoxiang Zhu

Review of Financial Studies, 2016, vol. 29, issue 8, 2110-2160

Abstract: We propose and test a theory of using commodities as collateral for financing. Under capital control and collateral constraint, investors import commodities and pledge them as collateral to earn higher expected returns. Higher collateral demands increase commodity prices and make the inventory–convenience yield relation less negative. Our model illustrates these equilibrium effects and suggests that the violation of covered interest-rate parity is a proxy for collateral demands. Evidence from eight commodities in China and developed markets supports the theoretical predictions. Our findings complement the theory of storage and provide new insights into the financialization of commodity markets. Received July 16, 2015; accepted April 7, 2016 by Editor Stefan Nagel.

Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (10) Track citations by RSS feed

Downloads: (external link) (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from

Access Statistics for this article

Review of Financial Studies is currently edited by Itay Goldstein

More articles in Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().

Page updated 2022-05-04
Handle: RePEc:oup:rfinst:v:29:y:2016:i:8:p:2110-2160.