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Do Commodity Index Traders Destabilize Agricultural Futures Prices?

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  • Martin T. Bohl
  • Farrukh Javed
  • Patrick M. Stephan

Abstract

Motivated by repeated price spikes and crashes over the last decade, we investigate whether the intensive investment activities of commodity index traders (CITs) have destabilized agricultural futures markets. Using a stochastic volatility model, we treat conditional volatility as an unobserved component, and analyze whether it has been affected by the expected and unexpected open interest of CITs. However, with respect to twelve increasingly financialized grain, livestock, and soft commodities, we do not find robust evidence that this is the case. We thus conclude that justifying a tighter regulation of CITs by blaming them for more volatile agricultural futures markets appears to be unwarranted.

Suggested Citation

  • Martin T. Bohl & Farrukh Javed & Patrick M. Stephan, 2013. "Do Commodity Index Traders Destabilize Agricultural Futures Prices?," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 59(2), pages 125-148.
    • Handle: RePEc:aeq:aeqaeq:v59_y2013_i2_q2_p125-148
    DOI: 10.3790/aeq.59.2.125
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    More about this item

    Keywords

    commodity index traders; futures prices; agricultural markets;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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