Limitations of Granger Causality Analysis to assess the price effects from the financialization of agricultural commodity markets under bounded rationality

Stephanie Grosche

No 121868, Discussion Papers from University of Bonn, Institute for Food and Resource Economics

Abstract: Modern agricultural commodity markets are simultaneously governed by a physical and a financial market element. Whether financial “index trading” activity influences price levels on the futures markets has been investigated by empirical studies using Granger Causality Analysis. A critical review of these studies reveals inconclusive results. Based on sensitivities of the method, reasons for limited interpretability of results may be omitted determinants of financial trading activity, failure to consider the informational efficiency of markets, time-varying and feedback effects of boundedly rational heterogeneous trading strategies and limitations in specifying adequate theoretical variables from existing data.

Keywords: Agricultural and Food Policy; Demand and Price Analysis; Financial Economics (search for similar items in EconPapers)
Pages: 26
Date: 2012-02-07
New Economics Papers: this item is included in nep-agr
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:ubfred:121868

DOI: 10.22004/ag.econ.121868

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