The impact of long-only index funds on price discovery and market performance in agricultural futures markets

Sören Prehn, Thomas Glauben, Jens-Peter Loy, Ingo Pies and Matthias Georg Will

No 169081, IAMO Discussion Papers from Institute of Agricultural Development in Transition Economies (IAMO)

Abstract: For a considerable time, long-only index funds have been suspected for being responsible for price increases on agricultural futures markets, particularly those for grain. Utilizing partial equilibrium concepts, we analyze the market impacts of long-only index funds. Our analysis reveals that long-only index funds stabilize the market. The market entry of long-only index funds lowers risk premiums, so farmers can hedge at lower costs. This gives incentives for storage and dampens seasonal price fluctuations on spot markets, which is also in favor of consumers. However, the entry of long-only index funds reduces the profitability of speculation. Thus, there is no need for political action in this particular field.

Keywords: Agricultural Finance; Financial Economics (search for similar items in EconPapers)
Pages: 21
Date: 2014
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:iamodp:169081

DOI: 10.22004/ag.econ.169081

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