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Does institutional trading drive commodities prices away from their fundamentals: Evidence from a nonparametric causality-in-quantiles test

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  • Babalos, Vassilios
  • Balcilar, Mehmet

Abstract

Motivated by the heated debate on commodities market financialization hypothesis we set off to examine the asymmetric relationship between commodities funds flows and commodities market prices by employing a novel nonparametric causality-in-quantiles. With respect to our results, while the linear Granger causality tests fail to provide evidence of causality in either direction the more robust causality-in-quantiles approach highlights partial evidence of one way causality running from market returns to commodities fund flows. Finally, substantial evidence of predictability of the variance of commodities market returns emanating from commodities fund flows is also reported.

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  • Babalos, Vassilios & Balcilar, Mehmet, 2017. "Does institutional trading drive commodities prices away from their fundamentals: Evidence from a nonparametric causality-in-quantiles test," Finance Research Letters, Elsevier, vol. 21(C), pages 126-131.
    • Handle: RePEc:eee:finlet:v:21:y:2017:i:c:p:126-131
    DOI: 10.1016/j.frl.2016.11.017
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    3. Das, Debojyoti & Kannadhasan, M. & Bhattacharyya, Malay, 2019. "Do the emerging stock markets react to international economic policy uncertainty, geopolitical risk and financial stress alike?," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 1-19.
    4. Antonakakis, Nikolaos & Chang, Tsangyao & Cunado, Juncal & Gupta, Rangan, 2018. "The relationship between commodity markets and commodity mutual funds: A wavelet-based analysis," Finance Research Letters, Elsevier, vol. 24(C), pages 1-9.
    5. Będowska-Sójka, Barbara & Kliber, Agata, 2019. "The causality between liquidity and volatility in the Polish stock market," Finance Research Letters, Elsevier, vol. 30(C), pages 110-115.
    6. Evžen Kočenda & Michala Moravcová & Evžen Kocenda, 2024. "Frequency Volatility Connectedness and Portfolio Hedging of U.S. Energy Commodities," CESifo Working Paper Series 10889, CESifo.
    7. Śmiech, Sławomir & Papież, Monika & Fijorek, Kamil & Dąbrowski, Marek A., 2019. "What drives food price volatility? Evidence based on a generalized VAR approach applied to the food, financial and energy markets," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-32.
    8. Jiang, Yonghong & Wang, Jieru & Lie, Jiayi & Mo, Bin, 2021. "Dynamic dependence nexus and causality of the renewable energy stock markets on the fossil energy markets," Energy, Elsevier, vol. 233(C).
    9. González-Sánchez, Mariano, 2018. "Causality in the EMU sovereign bond markets," Finance Research Letters, Elsevier, vol. 26(C), pages 281-290.
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    More about this item

    Keywords

    Commodities markets; Commodities fund flows; Quantile causality; Volatility;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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