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Financialization and Structural Change in Commodity FuturesMarkets

Published online by Cambridge University Press:  26 January 2015

Scott H. Irwin  and
Dwight R. Sanders
Scott H. Irwin
Affiliation:
Agricultural Marketing, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, Urbana, Illinois
Dwight R. Sanders
Affiliation:
Department of Agribusiness Economics, Southern Illinois University Carbondale, Carbondale, Illinois
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Abstract

The first decade of the 21st century has perhaps witnessed morestructural change in commodity futures markets than all previous decadescombined. Not only have trading volumes and open interest increasedmarkedly, but this time period also saw historic changes in both trading andparticipants. The available literature indicates that the irrational andharmful impacts of the structural changes in commodity futures markets overthe last decade have been minimal. In particular, there is little evidencethat passive index investment caused a massive bubble in commodity futuresprices. There is intriguing evidence of several other rational andbeneficial impacts of the structural changes over the last decade. Inparticular, the expanding market participation may have decreased riskpremiums, and hence, the cost of hedging, reduced price volatility, andbetter integrated commodity markets with financial markets.

Keywords

bubblecommodityfutures marketsindex fundspricesspeculationD84G12G13G14Q13Q41
Type
Invited Paper Sessions
Information
Journal of Agricultural and Applied Economics , Volume 44 , Issue 3 , August 2012 , pp. 371 - 396
Copyright
Copyright © Southern Agricultural Economics Association 2012

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