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Convective Risk Flows in Commodity Futures Markets

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Listed:
  • Ing-Haw Cheng
  • Andrei Kirilenko
  • Wei Xiong

Abstract

We study the joint responses of commodity future prices and positions of various trader groups to changes of the CBOE Volatility Index (VIX) before and after the recent financial crisis. Financial traders reduced their net long positions during the crisis in response to market distress, whereas hedgers facilitated this by reducing their net short positions as prices fell. This "convective risk flow" induced by the greater distress of financial institutions led to a change in the allocation of risk with hedgers holding more risk than they did previously. The presence of such a risk flow confirms the market impact of financial traders conditional on trades they initiate.

Suggested Citation

  • Ing-Haw Cheng & Andrei Kirilenko & Wei Xiong, 2015. "Convective Risk Flows in Commodity Futures Markets," Review of Finance, European Finance Association, vol. 19(5), pages 1733-1781.
  • Handle: RePEc:oup:revfin:v:19:y:2015:i:5:p:1733-1781.
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    File URL: http://hdl.handle.net/10.1093/rof/rfu043
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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