We would like to thank Ron Alquist, Lutz Kilian, Galo Nuño, Yingying Wu, and participants of the joint ECB and Norges Bank Workshop on Monetary Policy and Commodity Prices in Frankfurt, 2012, and the Second International Conference of Futures and Derivatives Markets in Beijing, 2013, for their helpful comments. The contents of this paper are the authors’ sole responsibility and not those of the Oxford Institute for Energy Studies or its members.
Causes and Implications of Shifts in Financial Participation in Commodity Markets
Article first published online: 22 APR 2014
© 2014 Wiley Periodicals, Inc.
Journal of Futures Markets
Volume 34, Issue 8, pages 757–787, August 2014
How to Cite
Fattouh, B. and Mahadeva, L. (2014), Causes and Implications of Shifts in Financial Participation in Commodity Markets. J. Fut. Mark., 34: 757–787. doi: 10.1002/fut.21674
- Issue published online: 8 JUL 2014
- Article first published online: 22 APR 2014
- Manuscript Received: 1 MAR 2014
- Manuscript Accepted: 1 MAR 2014
We assess the causes and implications of the greater financial participation in commodity markets post-2003. Focusing on crude oil, we build a calibrated macro-finance model of oil prices and quantities that also determines consumer welfare. We show that shifts in the preferences and constraints of financial speculators cannot explain the observed movement in the futures spread and so are unlikely to expose consumer welfare to shocks, even in the presence of belief disagreements. Shifts in the supply and demand for spot oil can better explain many of the features often attributed to financialization including financial participation itself. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 34:757–787, 2014