Causes and Implications of Shifts in Financial Participation in Commodity Markets

Fattouh, Bassam; Mahadeva, L.

Abstract

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

Citation

Fattouh, B., & Mahadeva, L. (2014). Causes and Implications of Shifts in Financial Participation in Commodity Markets. The Journal of Futures Markets, 34(8), 757-787. https://doi.org/10.1002/fut.21674

• Journal Article Type: Article
• Acceptance Date: Mar 1, 2014
• Online Publication Date: Apr 22, 2014
• Publication Date: Apr 22, 2014
• Deposit Date: Nov 6, 2015
• Print ISSN: 0270-7314
• Electronic ISSN: 1096-9934
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 34
• Issue: 8
• Pages: 757-787
• DOI: https://doi.org/10.1002/fut.21674