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Do financial investors affect the price of wheat?

Author

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  • Daniele Girardi

    (CRESME Ricerche)

Abstract

It is widely debated whether financial speculation was a significant force behind recent food price fluctuations. As a matter of fact, during the 2000s agricultural commodity derivatives markets were flooded by a 'wall of money' coming from financial investors. In agricultural exchanges, the greatest part of this huge financial inflow came from index traders, i.e. financial actors that follow a passive strategy of tracking a commodity index. In this article I present new empirical evidence that supports the hypothesis that financial investments have affected wheat price dynamics in recent years. In particular, I focus on Hard Red Winter (HRW) wheat. 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, since both these relationships proved to be spurious, with the most tracked commodity index as the confounding variable.

Suggested Citation

  • Daniele Girardi, 2012. "Do financial investors affect the price of wheat?," PSL Quarterly Review, Economia civile, vol. 65(260), pages 79-109.
    • Handle: RePEc:psl:pslqrr:2012:14
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    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9936/9819
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    Citations

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    Cited by:

    1. Czech, Katarzyna, 2013. "Speculation in the agricultural commodity market," Problems of World Agriculture / Problemy Rolnictwa Światowego, Warsaw University of Life Sciences, vol. 13(28), pages 1-8, December.
    2. Stefano Di Bucchianico, 2020. "A note on financialization from a Classical-Keynesian standpoint," Department of Economics University of Siena 824, Department of Economics, University of Siena.
    3. Nagayev, Ruslan & Disli, Mustafa & Inghelbrecht, Koen & Ng, Adam, 2016. "On the dynamic links between commodities and Islamic equity," Energy Economics, Elsevier, vol. 58(C), pages 125-140.
    4. Nagayev, Ruslan & Masih, Mansur, 2013. "Should Shariah-compliant investors include commodities in their portfolios? New evidence," MPRA Paper 58851, University Library of Munich, Germany.
    5. Pierluigi Vellucci, 2021. "A critique of financial neoliberalism: a perspective combining multidisciplinary methods and commodity markets," SN Business & Economics, Springer, vol. 1(3), pages 1-11, March.
    6. Di Bucchianico, Stefano, 2019. "The Impact of Financialization on the Rate of Profit: A Discussion," Centro Sraffa Working Papers CSWP36, Centro di Ricerche e Documentazione "Piero Sraffa".

    More about this item

    Keywords

    Agricultural Commodity Prices; Financialization; Commodity Futures Markets; Commodity Index Trading;
    All these keywords.

    JEL classification:

    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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