Does the Masters Hypothesis Explain Recent Food Price Spikes?

Scott Irwin

No 126877, 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil from International Association of Agricultural Economists

Abstract: The Masters Hypothesis is the claim that unprecedented buying pressure in recent years from commodity index investors created massive bubbles in food and energy prices. A number of recent studies investigate the empirical relationship between index investment and price movements in agricultural futures markets. One line of research uses time-series regression tests, such as Granger causality tests, to investigate the relationship between price movements and index positions. This research provides little evidence in support of the Masters Hypothesis in agricultural futures markets. A second line of research uses cross-sectional regression tests and studies in this area provide very limited evidence in favor of the Masters Hypothesis for agricultural futures markets. A third line of research investigates whether there is a significant relationship between commodity index trading and the difference, or spread, between futures prices of different contract maturities. These studies report a range of results depending on the type of test. However, the bulk of the evidence indicates either no relationship or a negative relationship, which is once again inconsistent with the Masters Hypothesis. Overall, this growing body of literature fails to find compelling evidence that buying pressure from commodity index investment in recent years caused a massive bubble in agricultural futures prices. The Masters Hypothesis is simply not a valid characterization of reality.

Keywords: Demand and Price Analysis; Food Consumption/Nutrition/Food Safety; Resource/Energy Economics and Policy (search for similar items in EconPapers)
Pages: 38
Date: 2012
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:iaae12:126877

DOI: 10.22004/ag.econ.126877

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