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The Impact of Index and Swap Funds on Commodity Futures Markets: Preliminary Results

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  • Scott H. Irwin
  • Dwight R. Sanders

Abstract

This preliminary study examines the impact of index and swap fund participation in agricultural and energy commodity futures markets. Based on new data and empirical analysis the study finds that index funds did not cause a bubble in agricultural futures prices. Using Granger causality methods the study finds no statistically significant relationship between changes in index and swap fund positions and increased market volatility. The evidence is strongest for agricultural futures markets because the data on index trader positions are measured with reasonable accuracy. The evidence is not as strong in the two energy markets examined here because of considerable uncertainty about the degree to which the available data actually reflect index trader positions in these markets.

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File URL: http://dx.doi.org/10.1787/5kmd40wl1t5f-en
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Food, Agriculture and Fisheries Papers with number 27.

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Date of creation: Jun 2010
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Handle: RePEc:oec:agraaa:27-en

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Related research

Keywords: futures price volatility; index funds and swaps; speculation; agricultural futures markets; speculative bubbles;

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Cited by:
  1. Huang, Wen & Huang, Zhuo & Matei, Marius & Wang, Tianyi, 2012. "Price Volatility Forecast for Agricultural Commodity Futures: The Role of High Frequency Data," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 83-103, December.
  2. Fabienne Féménia & Alexandre Gohin, 2010. "Faut-il une intervention publique pour stabiliser les marchés agricoles ? Revue des questions non résolues," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement, INRA Department of Economics, INRA Department of Economics, vol. 91(4), pages 435-456.
  3. Varadi, Vijay Kumar, 2012. "An evidence of speculation in Indian commodity markets," MPRA Paper 38337, University Library of Munich, Germany.
  4. Péter Kondor & Dimitri Vayanos, 2014. "Liquidity Risk and the Dynamics of Arbitrage Capital," NBER Working Papers 19931, National Bureau of Economic Research, Inc.
  5. ap Gwilym, Rhys & Ebrahim, M. Shahid, 2013. "Can position limits restrain ‘rogue’ trading?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(3), pages 824-836.
  6. M. J. Lombardi & I. Van Robays, 2011. "Do Financial Investors Destabilize the Oil Price?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 11/760, Ghent University, Faculty of Economics and Business Administration.

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