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

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  • Girardi, Daniele

Abstract

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.

Suggested Citation

  • Girardi, Daniele, 2011. "Do financial investors affect commodity prices? The case of Hard Red Winter Wheat," MPRA Paper 35670, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:35670
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    File URL: https://mpra.ub.uni-muenchen.de/35670/1/MPRA_paper_35670.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Dwight R. Sanders & Scott H. Irwin, 2010. "A speculative bubble in commodity futures prices? Cross-sectional evidence," Agricultural Economics, International Association of Agricultural Economists, vol. 41(1), pages 25-32, January.
    3. Rafael E. de Hoyos & Denis Medvedev, 2011. "Poverty Effects of Higher Food Prices: A Global Perspective," Review of Development Economics, Wiley Blackwell, vol. 15(3), pages 387-402, August.
    4. 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.
    5. Gary Gorton & K. Geert Rouwenhorst, 2004. "Facts and Fantasies about Commodity Futures," NBER Working Papers 10595, National Bureau of Economic Research, Inc.
    6. Ke Tang & Wei Xiong, 2010. "Index Investment and Financialization of Commodities," NBER Working Papers 16385, National Bureau of Economic Research, Inc.
    7. 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).
    8. Mitchell, Donald, 2008. "A note on rising food prices," Policy Research Working Paper Series 4682, The World Bank.
    9. Christopher L. Gilbert, 2008. "How to Understand High Food Prices," Department of Economics Working Papers 0823, Department of Economics, University of Trento, Italia.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Agricultural Commodity Prices; Global Commodity Crises; Financialization; Commodity Futures Markets; Commodity Index Trading; Agricultural Markets; Commodity Futures Pricing;

    JEL classification:

    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade

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