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Do financial investors affect commodity prices? The case of Hard Red Winter Wheat

  • Girardi, Daniele
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    The aim of this paper is to assess empirically whether speculative financial investments have affected wheat price dynamics in recent years. To address this issue we will (1) analyze recent agricultural price dynamics and their drivers (2) outline the process of ‘financialization’ of agricultural commodity markets, identifying the macroeconomic, monetary and legislative factors which favored it and (3) present an econometric analysis using Hard Red Winter (HRW) wheat as a case study. Since 2007 HRW wheat price fluctuations have been positively related to US stock market returns and oil price movements. These correlations appear to be determined by commodity index traders, a category of financial investors, since both these relationships proved to be spurious, with the most tracked commodity index as the confounding variable.

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    File URL: http://mpra.ub.uni-muenchen.de/35670/1/MPRA_paper_35670.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35670.

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    Date of creation: 15 Nov 2011
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    Handle: RePEc:pra:mprapa:35670
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    1. Sanders, Dwight R. & Irwin, Scott H. & Merrin, Robert P., 2009. "A Speculative Bubble in Commodity Futures Prices? Cross-Sectional Evidence," 2009 Conference, April 20-21, 2009, St. Louis, Missouri 53050, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    2. Gary Gorton & K. Rouwenhorst, 2004. "Facts and Fantasies about Commodity Futures," Yale School of Management Working Papers amz2619, Yale School of Management, revised 01 Mar 2005.
    3. De Hoyos, Rafael E. & Medvedev, Denis, 2009. "Poverty effects of higher food prices : a global perspective," Policy Research Working Paper Series 4887, The World Bank.
    4. Hernandez, Manuel & Torero, Maximo, 2010. "Examining the dynamic relationship between spot and future prices of agricultural commodities," IFPRI discussion papers 988, International Food Policy Research Institute (IFPRI).
    5. Mitchell, Donald, 2008. "A note on rising food prices," Policy Research Working Paper Series 4682, The World Bank.
    6. Büyükşahin, Bahattin & Robe, Michel A., 2014. "Speculators, commodities and cross-market linkages," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 38-70.
    7. Christopher L. Gilbert, 2008. "How to Understand High Food Prices," Department of Economics Working Papers 0823, Department of Economics, University of Trento, Italia.
    8. Ke Tang & Wei Xiong, 2010. "Index Investment and Financialization of Commodities," NBER Working Papers 16385, National Bureau of Economic Research, Inc.
    9. Donald W. K. Andrews, 2003. "Tests for Parameter Instability and Structural Change with Unknown Change Point: A Corrigendum," Econometrica, Econometric Society, vol. 71(1), pages 395-397, January.
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