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Financialization and Structural Change in Commodity Futures Markets

  • Irwin, Scott H.
  • Sanders, Dwight R.

The first decade of the 21st century has perhaps witnessed more structural change in commodity futures markets than all previous decades combined. Not only have trading volumes and open interest increased markedly, but this time period also saw historic changes in both trading and participants. The available literature indicates that the irrational and harmful impacts of the structural changes in commodity futures markets over the last decade have been minimal. In particular, there is little evidence that passive index investment caused a massive bubble in commodity futures prices. There is intriguing evidence of several other rational and beneficial impacts of the structural changes over the last decade. In particular, the expanding market participation may have decreased risk premiums, and hence, the cost of hedging, reduced price volatility, and better integrated commodity markets with financial markets.

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File URL: http://purl.umn.edu/130280
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Article provided by Southern Agricultural Economics Association in its journal Journal of Agricultural and Applied Economics.

Volume (Year): 44 (2012)
Issue (Month): 03 (August)
Pages:

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Handle: RePEc:ags:joaaec:130280
Contact details of provider: Web page: http://www.saea.org/jaae/jaae.htm

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  1. Shah, Samarth & Brorsen, B. Wade, 2011. "Electronic vs. Open Outcry: Side-by-Side Trading of KCBT Wheat Futures," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(1), April.
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  3. Sanders, Dwight R. & Irwin, Scott H. & Merrin, Robert P., 2009. "A Speculative Bubble in Commodity Futures Prices? Cross-Sectional Evidence," 2009 Conference, April 20-21, 2009, St. Louis, Missouri 53050, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
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  5. Julieta Frank & Philip Garcia, 2010. "Bid-Ask Spreads, Volume, and Volatility: Evidence from Livestock Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(1), pages 209-225.
  6. Lombardi, Marco J. & Van Robays, Ine, 2011. "Do financial investors destabilize the oil price?," Working Paper Series 1346, European Central Bank.
  7. Büyükşahin, Bahattin & Robe, Michel A., 2014. "Speculators, commodities and cross-market linkages," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 38-70.
  8. Bruce Bjornson & Colin A. Carter, 1997. "New Evidence on Agricultural Commodity Return Performance under Time-Varying Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 918-930.
  9. Christopher L. Gilbert, 2010. "How to Understand High Food Prices," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 398-425.
  10. Bahattin Buyuksahin & Jeffrey H. Harris, 2011. "Do Speculators Drive Crude Oil Futures Prices?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 167-202.
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