Financialization and commodity price volatility

the case of grains

Devraj Basu, Olivier Bautheac, Ameeta Jaiswal-Dale

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

The early 2000s have witnessed a dramatic increase in long only institutional investments in commodity markets. This surge and its accompanying effects are commonly referred to as the financialization of commodity markets. This paper studies the impact of this phenomenon on price volatility in the grain markets where we focus on CBOT corn, wheat & soy beans and KCBOT wheat. Our results suggest that increases in trading volume and open interest, a consequence of financialization, appear to have changed the nature of grains volatility and seem consistent with the model of Stein (1987) and Goldstein and Yang (2015) where the entry of new traders could lower the information content of price for existing traders. Our findings further suggest that the increase in market depth has a generally destabilizing effect on grains volatility which provides some support for the concerns of regulators. However this destabilizing effect does not seem to be driven by the action of speculators. Our analysis is thus overall more supportive of Singleton (2013) and Stein (1987) in that disagreement and difference of opinion are more likely to have caused changes in the nature of grains volatility than excess speculation.
Original languageEnglish
Title of host publicationAdvances in Investment Analysis and Portfolio Management
Place of PublicationTaiwan
Pages131-175
Number of pages45
Volume9
Publication statusAccepted/In press - 13 Aug 2019

Fingerprint

Commodity prices
Price volatility
Financialization
Traders
Commodity markets
Wheat
Speculators
Speculation
Market depth
Grain market
Trading volume
Institutional investment
Corn
Soybean
Open interest
Excess volatility
Information content

Keywords

  • price volatility
  • grain prices
  • commodity markets

Cite this

Basu, D., Bautheac, O., & Jaiswal-Dale, A. (Accepted/In press). Financialization and commodity price volatility: the case of grains. In Advances in Investment Analysis and Portfolio Management (Vol. 9, pp. 131-175). Taiwan.
Basu, Devraj ; Bautheac, Olivier ; Jaiswal-Dale, Ameeta. / Financialization and commodity price volatility : the case of grains. Advances in Investment Analysis and Portfolio Management. Vol. 9 Taiwan, 2019. pp. 131-175
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Basu, D, Bautheac, O & Jaiswal-Dale, A 2019, Financialization and commodity price volatility: the case of grains. in Advances in Investment Analysis and Portfolio Management. vol. 9, Taiwan, pp. 131-175.

Financialization and commodity price volatility : the case of grains. / Basu, Devraj; Bautheac, Olivier; Jaiswal-Dale, Ameeta.

Advances in Investment Analysis and Portfolio Management. Vol. 9 Taiwan, 2019. p. 131-175.

Research output: Chapter in Book/Report/Conference proceedingChapter

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KW - grain prices

KW - commodity markets

M3 - Chapter

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SP - 131

EP - 175

BT - Advances in Investment Analysis and Portfolio Management

CY - Taiwan

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Basu D, Bautheac O, Jaiswal-Dale A. Financialization and commodity price volatility: the case of grains. In Advances in Investment Analysis and Portfolio Management. Vol. 9. Taiwan. 2019. p. 131-175