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Energy futures prices and commodity index investment: New evidence from firm-level position data

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

Abstract

This study brings fresh data to the highly-charged debate about the price impact of long-only index investment in energy futures markets. We use high frequency daily position data for NYMEX crude oil, heating oil, RBOB gasoline, and natural gas that are available from a representative large commodity index fund (“the Fund”) from February 13, 2007 through May 30, 2012. Simple correlation tests, difference-in-means tests, and Granger causality tests generally fail to reject the null hypothesis that changes in Fund positions are unrelated to subsequent returns in all four energy futures markets. We also fail to find any evidence that Fund positions are related to price movements in the WTI crude oil futures market using Singleton's (2014) long-horizon regression specification. Our results suggest Singleton's original finding of significant impacts and high levels of predictability may be simply an artifact of the method used to impute crude oil positions of index investors in a particular sample period. Overall, the empirical tests in this study fail to find compelling evidence of predictive links between commodity index investment and changes in energy futures prices.

Suggested Citation

  • Sanders, Dwight R. & Irwin, Scott H., 2014. "Energy futures prices and commodity index investment: New evidence from firm-level position data," Energy Economics, Elsevier, vol. 46(S1), pages 57-68.
  • Handle: RePEc:eee:eneeco:v:46:y:2014:i:s1:p:s57-s68
    DOI: 10.1016/j.eneco.2014.09.005
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. repec:bla:jageco:v:68:y:2017:i:2:p:345-365 is not listed on IDEAS
    2. Sharma, Shahil & Escobari, Diego, 2018. "Identifying price bubble periods in the energy sector," Energy Economics, Elsevier, vol. 69(C), pages 418-429.
    3. Valenti, Daniele & Manera, Matteo & Sbuelz, Alessandro, 2018. "Interpreting the Oil Risk Premium: do Oil Price Shocks Matter?," ETA: Economic Theory and Applications 268730, Fondazione Eni Enrico Mattei (FEEM).
    4. repec:eee:eneeco:v:72:y:2018:i:c:p:486-504 is not listed on IDEAS
    5. Gronwald, Marc, 2016. "Explosive oil prices," Energy Economics, Elsevier, vol. 60(C), pages 1-5.

    More about this item

    Keywords

    Bubble; Commodity; Futures market; Index funds; Michael Masters; Energy prices;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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