Commodity index trading and hedging costs

Celso Brunetti and David Reiffen

No 2011-57, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Trading by commodity index traders (CITs) has become an important aspect of financial markets over the past 10 years. We develop an equilibrium model of trader behavior that relates uninformed CIT trading to futures prices. The model predicts that CIT trading reduces the cost of hedging. We test the model using a unique non-public dataset which precisely identifies trader positions. We find evidence, consistent with the model, that index traders have become an important supply of price risk insurance.

Keywords: Commodity futures - Mathematical models; Hedging (Finance) - Mathematical models (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/2011/201157/201157abs.html (text/html)
http://www.federalreserve.gov/pubs/feds/2011/201157/201157pap.pdf (application/pdf)

Related works:
Journal Article: Commodity index trading and hedging costs (2014)
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: https://EconPapers.repec.org/RePEc:fip:fedgfe:2011-57

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().