Index Investment and Financialization of Commodities

Ke Tang and Wei Xiong

No 16385, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper finds that, concurrent with the rapid growing index investment in commodities markets since early 2000s, futures prices of different commodities in the US became increasingly correlated with each other and this trend was significantly more pronounced for commodities in the two popular GSCI and DJ-UBS commodity indices. This finding reflects a financialization process of commodities markets and helps explain the synchronized price boom and bust of a broad set of seemingly unrelated commodities in the US in 2006-2008. In contrast, such commodity price comovements were absent in China, which refutes growing commodity demands from emerging economies as the driver.

JEL-codes: G1 G13 (search for similar items in EconPapers)
Date: 2010-09
Note: AP ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (175)

Published as “Index Investment and Financialization of Commodities” (with Ke Tang) Financial Analysts Journal , 2012, Vol. 68, 54-74.

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