Rebalancing effects of commodity indices on open interest, volume and prices

Florian Schmid, Herbert Mayer, Markus Wanner and Andreas W. Rathgeber

The European Journal of Finance, 2023, vol. 29, issue 10, 1187-1206

Abstract: The investment volume for commodity indices has increased rapidly over the past years. This financialization is intensively discussed in politics and science with mixed results because of several problems. We use a novel idea to measure the effect of the growing investment volume of index investors by looking at index rebalancing, in which only financial traders are forced to trade. Analyzing 289 rebalancing between 2006 and 2021 for the BCOM and the S&P GSCI, we observe significant results—with abnormal returns up to 14.1%—only for open interest and volume data. We cannot prove an effect on prices and, therefore, no effect of financialization on the real economy.

Date: 2023
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DOI: 10.1080/1351847X.2022.2098793

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