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The impact of financialization on the efficiency of commodity futures markets

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  • Bohl, Martin T.
  • Irwin, Scott H.
  • Pütz, Alexander
  • Sulewski, Christoph

Abstract

The pronounced inflow of financial capital from index investors over the last 15 years and the accompanying substantial fluctuations in commodity futures markets have aroused public and academic interest. A common accusation made in this context is that commodity index traders (CITs) negatively influence the quality of commodity futures markets and keep them far from fundamentally justified price levels. In this paper, we focus on quantifying market efficiency, and investigate empirically the suggested effect of CITs over the period from 1999 to 2019 for 34 commodity futures markets. In contrast to recent studies, we find empirical evidence that the financialization positively affected the market efficiency of indexed commodity futures markets. Consistently, we observe that the degree of commodity index trader activity is associated with higher degrees of informational efficiency.

Suggested Citation

  • Bohl, Martin T. & Irwin, Scott H. & Pütz, Alexander & Sulewski, Christoph, 2023. "The impact of financialization on the efficiency of commodity futures markets," Journal of Commodity Markets, Elsevier, vol. 31(C).
    • Handle: RePEc:eee:jocoma:v:31:y:2023:i:c:s240585132300020x
    DOI: 10.1016/j.jcomm.2023.100330
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    More about this item

    Keywords

    Commodity financialization; Price informativeness; Index investing; Real economic effects;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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