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Hedging, arbitrage and the financialization of commodities markets

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  • Domenica Tropeano

    (University of Macerata)

Abstract

The paper provides an overview of the unfolding of the financialization of commodities in the 2000-2014 time frame. Different phases are described according to the positioning of the group of traders, their motivations, and the type of financial assets used to take a position in commodities. The main theme is the failure of arbitrage to level prices of similar financial assets traded in different markets. However, this failure does not depend on financing constraints suffered by arbitrageurs. Following Mirowski (2010) it is shown that arbitrage becomes a form of financial innovation rather than an equilibrating mechanism in contemporary financial markets. Historical accidents and changes in policy affect the positions of groups in the financial market game. The various strategies used are explained by creating a set of T accounts for the various groups that highlight the winners and the losers in the various phases.

Suggested Citation

  • Domenica Tropeano, 2016. "Hedging, arbitrage and the financialization of commodities markets," Working Papers 82-2016, Macerata University, Department of Finance and Economic Sciences, revised Sep 2016.
    • Handle: RePEc:mcr:wpdief:wpaper00082
    as

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    References listed on IDEAS

    as
    1. Mirowski, Philip, 2010. "Inherent Vice: Minsky, Markomata, and the tendency of markets to undermine themselves," Journal of Institutional Economics, Cambridge University Press, vol. 6(4), pages 415-443, December.
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    7. Shleifer, Andrei & Vishny, Robert W, 1997. "The Limits of Arbitrage," Journal of Finance, American Finance Association, vol. 52(1), pages 35-55, March.
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    Cited by:

    1. Abeles, Martín & Pérez Caldentey, Esteban & Porcile, Gabriel, 2020. "The COVID-19 crisis and the structural problems of Latin America and the Caribbean: responding to the emergency with a long-term perspective," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.

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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • B00 - Schools of Economic Thought and Methodology - - General - - - History of Economic Thought, Methodology, and Heterodox Approaches

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