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Financialization of food - The determinants of the time-varying relation between agricultural prices and stock market dynamics

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  • Girardi, Daniele

Abstract

This paper studies the correlation of agricultural prices with stock market dynamics. We discuss the possible role of financial, macroeconomic and monetary factors in driving this time-varying relation, with the aim of understanding what has caused positive correlation between agricultural commodities and stocks in recent years. While previous works on commodity-equity correlation have focused on broad commodity indices, we study 16 main agricultural prices, in order to be able to assess patterns that are specific to agricultural commodities (but also differences across agricultural markets). We show that an explanation based on a combination of financialization and financial crisis is consistent with the empirical evidence, while global demand factors and monetary forces don't appear to play a significant role. In particular, we find that the correlation between agricultural price changes and stock market returns tends to get higher as the so-called TED spread (our proxy for financial turmoil) increases. Moreover, the impact of financial turmoil on the correlation gets stronger as the share of financial investors in agricultural derivatives markets (our proxy for financialization) rises. Our findings suggest that the influence of financial shocks on agricultural prices is likely to decrease as global financial tensions settle down but also that, as long as agricultural derivatives markets are populated mainly by financial investors, it can be expected to rise again when it is less needed, i.e. in the presence of new financial turmoil.

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  • Girardi, Daniele, 2013. "Financialization of food - The determinants of the time-varying relation between agricultural prices and stock market dynamics," MPRA Paper 52043, University Library of Munich, Germany, revised 16 Nov 2013.
    • Handle: RePEc:pra:mprapa:52043
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Manisha Pradhananga, 2016. "Financialization and the rise in co-movement of commodity prices," International Review of Applied Economics, Taylor & Francis Journals, vol. 30(5), pages 547-566, September.
    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. Karol Szafranek, 2015. "Financialisation of the commodity markets. Conclusions from the VARX DCC GARCH," EcoMod2015 8554, EcoMod.
    4. Loretta Mastroeni & Alessandro Mazzoccoli & Greta Quaresima & Pierluigi Vellucci, 2021. "Wavelet analysis and energy-based measures for oil-food price relationship as a footprint of financialisation effect," Papers 2104.11891, arXiv.org, revised Mar 2022.
    5. Liu, Lu & Zhang, Xiang, 2019. "Financialization and commodity excess spillovers," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 195-216.
    6. Sania Wadud & Robert D. Durand & Marc Gronwald, 2021. "Connectedness between the Crude Oil Futures and Equity Markets during the Pre- and Post-Financialisation Eras," CESifo Working Paper Series 9202, CESifo.
    7. Dutta, Anupam & Soytas, Ugur & Das, Debojyoti & Bhattacharyya, Asit, 2022. "In search of time-varying jumps during the turmoil periods: Evidence from crude oil futures markets," Energy Economics, Elsevier, vol. 114(C).
    8. Mastroeni, Loretta & Mazzoccoli, Alessandro & Quaresima, Greta & Vellucci, Pierluigi, 2022. "Wavelet analysis and energy-based measures for oil-food price relationship as a footprint of financialisation effect," Resources Policy, Elsevier, vol. 77(C).
    9. 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.
    10. Matteo Bonato & Oğuzhan Çepni & Rangan Gupta & Christian Pierdzioch, 2023. "El Niño, La Niña, and forecastability of the realized variance of agricultural commodity prices: Evidence from a machine learning approach," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(4), pages 785-801, July.
    11. Ouyang, Ruolan & Zhang, Xuan, 2020. "Financialization of agricultural commodities: Evidence from China," Economic Modelling, Elsevier, vol. 85(C), pages 381-389.
    12. 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".

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    More about this item

    Keywords

    financialization; agricultural prices; DCC; cross-market correlations;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture

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