Estimating the Impact of Financial Investments on Agricultural Futures Prices Using Changes in Volatility

Aufsätze referiert extern - Web of Science

Michael Hachula, Malte Rieth

In: American Journal of Agricultural Economics 102 (2020), 3, S. 759-785

Abstract

This paper studies the impact of financial investments on agricultural futures prices, using structural vector autoregressions. We identify exogenous variation in net long positions of speculators through heteroskedasticity. We first show that demand shocks of both index investors and noncommercial traders lead to a statistically significant contemporaneous increase in futures prices. We then quantify the economic importance of these shocks. Our findings suggest a negligible contribution of index investors’ demand shocks and only a small contribution of noncommercials’ demand shocks to futures price dynamics, both on average and during the boom-busts in 2007/08 and 2011/12.

Malte Rieth

Research Associate in the Macroeconomics Department



JEL-Classification: C32;G12;G13;Q14
Keywords: Agricultural commodities, financialization, futures market structure, speculators, structural vector autoregressions
DOI:
http://dx.doi.org/10.1093/ajae/aaz024