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Do financial investors affect commodity prices? The case of Hard Red Winter Wheat

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  • Daniele Girardi

Abstract

The aim of this paper is to assess empirically whether speculative financial investments have affected wheat price dynamics in recent years. To address this issue we will (1) analyze recent agricultural price dynamics and their drivers (2) outline the process of ‘financialization’ of agricultural commodity markets, identifying the macroeconomic, monetary and legislative factors which favored it and (3) present an econometric analysis using Hard Red Winter (HRW) wheat as a case study. Since 2007 HRW wheat price fluctuations have been positively related to US stock market returns and oil price movements. These correlations appear to be determined by commodity index traders, a category of financial investors, since both these relationships proved to be spurious, with the most tracked commodity index as the confounding variable.

Suggested Citation

  • Daniele Girardi, 2011. "Do financial investors affect commodity prices? The case of Hard Red Winter Wheat," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 0611, Department of Economic Policy, Finance and Development (DEPFID), University of Siena.
    • Handle: RePEc:usi:depfid:0611
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    Keywords

    Agricultural Commodity Prices; Global Commodity Crises; Financialization; Commodity Futures Markets; Commodity Index Trading; Agricultural Markets; Commodity Futures Pricing.;
    All these keywords.

    JEL classification:

    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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