Price dynamics and financialization effects in corn futures markets with heterogeneous traders

Presumed portfolio benefits of commodities and the availability of index fund-type investment products increase attractiveness of commodity markets for financial traders. But resulting “index trading” strategies are suspected to inflate commodity prices above their fundamental value. We use a Heterogeneous Agent Model for the corn futures market, which can depict price dynamics from the interaction of fundamentalist commercial traders and chartist speculators, and estimate its parameters with the Method of Simulated Moments. In a scenario-based approach, we introduce index funds and simulate price effects from their inclusion in financial portfolio strategies. Results show that the additional long-only trading volume on the market does not inflate price levels but increases return volatility.


Editor(s):
Heckelei, Thomas
Issue Date:
Jun 07 2014
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/172077
Total Pages:
38
JEL Codes:
D84; G15; G17; Q02
Series Statement:
Agricultural and Resource Economics, Discussion Paper
2014/5




 Record created 2017-04-01, last modified 2017-08-27

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