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Approaches to Price Formation in Financialised Commodity Markets

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  • Sophie van Huellen

    () (Department of Economics, SOAS University of London, UK)

Abstract

A recent debate over the financialisation of commodity markets has stimulated the development of approaches to price formation which incorporate index traders as a new trader category in commodity futures markets. I survey these new approaches by retracing their emergence to traditional price formation models and show that these new models arise from a synthesis between commodity arbitrage pricing and asset pricing theories in the tradition of Keynesian inspired hedging pressure models. Based on these insights, I derive testable hypotheses to provide guidance for a growing literature that seeks to empirically evaluate the effects of index traders on price discovery and risk management in commodity futures markets.

Suggested Citation

  • Sophie van Huellen, 2019. "Approaches to Price Formation in Financialised Commodity Markets," Working Papers 223, Department of Economics, SOAS, University of London, UK.
  • Handle: RePEc:soa:wpaper:223
    as

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    File URL: https://www.soas.ac.uk/economics/research/workingpapers/file140857.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    commodity prices; commodity futures; financialisation; index investment; speculation;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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