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Have commodities become a financial asset? Evidence from ten years of Financialization

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  • Adams, Zeno
  • Collot, Solène
  • Kartsakli, Maria

Abstract

The financialization of commodity markets over the last decade has changed the behavior of commodity prices in fundamental ways. In this paper, we uncover the gradual transformation of commodities from a physical to a financial asset. Although economic demand and supply factors continue to play an important role, recent indicators associated with financialization have emerged since 2008. We show that financial variables have become the main driving factors explaining the variation in commodity returns and volatility today. Our findings have important implications for portfolio analysis and for the effectiveness of hedging in commodity markets.

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  • Adams, Zeno & Collot, Solène & Kartsakli, Maria, 2020. "Have commodities become a financial asset? Evidence from ten years of Financialization," Energy Economics, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:eneeco:v:89:y:2020:i:c:s0140988320301092
    DOI: 10.1016/j.eneco.2020.104769
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    More about this item

    Keywords

    Crude oil; Commodities; Financialization; R-squared decomposition;
    All these keywords.

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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