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Price dynamics and financialization effects in corn futures markets with heterogeneous traders

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Listed author(s):
  • Grosche, Stephanie
  • Heckelei, Thomas

Abstract

Presumed portfolio benefits of commodities and the availability of index fund-type investment products increase attractiveness of commodity markets for financial traders. But resulting “index trading” strategies are suspected to inflate commodity prices above their fundamental value. We use a Heterogeneous Agent Model for the corn futures market, which can depict price dynamics from the interaction of fundamentalist commercial traders and chartist speculators, and estimate its parameters with the Method of Simulated Moments. In a scenario-based approach, we introduce index funds and simulate price effects from their inclusion in financial portfolio strategies. Results show that the additional long-only trading volume on the market does not inflate price levels but increases return volatility.

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File URL: http://purl.umn.edu/172077
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Paper provided by University of Bonn, Institute for Food and Resource Economics in its series Discussion Papers with number 172077.

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Date of creation: 07 Jun 2014
Handle: RePEc:ags:ubfred:172077
Contact details of provider: Web page: http://www.ilr1.uni-bonn.de/

More information through EDIRC

Keywords: Heterogeneous agents; Agent-based modeling; Commodity index treading; Financialization of commodity markets; Agricultural and Food Policy; Agricultural Finance; Financial Economics; Research Methods/ Statistical Methods; D84; G15; G17; Q02;

Find related papers by JEL classification:

  • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
  • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
  • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
  • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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