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Have Commodity Index Funds Increased Price Linkages between Commodities?

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  • Dorfman, Jeffrey H.
  • Karali, Berna

Abstract

To shed more light on the ongoing debate on the role of commodity index funds on recent commodity price spikes, we investigate the linkages between commodity futures prices surrounding the time period of increased index fund activity. We take a Bayesian approach to test stationarity and cointegration of commodity pairs and trios. We find that simple correlation coefficients between futures prices and the probability of nonstationarity of the series have increased over time as the size of index fund trading became larger. However, our cointegration test results show no evidence for an increase in cointegration.

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Handle: RePEc:ags:n13412:285783
DOI: 10.22004/ag.econ.285783
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