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Can we still blame index funds for the price movements in the agricultural commodities market?

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  • Palazzi, Rafael Baptista
  • Figueiredo Pinto, Antonio Carlos
  • Klotzle, Marcelo Cabus
  • De Oliveira, Erick Meira
Abstract
The role of speculation in the commodities market is still controversial. While several studies use linear models of causality to explain the relationship between speculation and price movements, there is a gap regarding the application of these analyses to detect causality. We compare linear and nonlinear methodologies to analyze whether speculation affects commodities’ price or if speculators are trend-followers, not only in the bullish market but also in the bearish one. The results suggest that there is no pattern in the cause and effect relationship, so even more sophisticated models are not capable of capturing causal effects.

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  • Palazzi, Rafael Baptista & Figueiredo Pinto, Antonio Carlos & Klotzle, Marcelo Cabus & De Oliveira, Erick Meira, 2020. "Can we still blame index funds for the price movements in the agricultural commodities market?," International Review of Economics & Finance, Elsevier, vol. 65(C), pages 84-93.
    • Handle: RePEc:eee:reveco:v:65:y:2020:i:c:p:84-93
    DOI: 10.1016/j.iref.2019.10.001
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    Cited by:

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    2. Oliver Borgards & Robert L. Czudaj, 2023. "Long‐short speculator sentiment in agricultural commodity markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3511-3528, October.
    3. Palazzi, Rafael Baptista & Meira, Erick & Klotzle, Marcelo Cabus, 2022. "The sugar-ethanol-oil nexus in Brazil: Exploring the pass-through of international commodity prices to national fuel prices," Journal of Commodity Markets, Elsevier, vol. 28(C).
    4. Makkonen, Adam & Vallström, Daniel & Uddin, Gazi Salah & Rahman, Md Lutfur & Haddad, Michel Ferreira Cardia, 2021. "The effect of temperature anomaly and macroeconomic fundamentals on agricultural commodity futures returns," Energy Economics, Elsevier, vol. 100(C).
    5. de Oliveira, Erick Meira & Cunha, Felipe Arias Fogliano de Souza & Palazzi, Rafael Baptista & Klotzle, Marcelo Cabus & Maçaira, Paula Medina, 2020. "On the effects of uncertainty measures on sustainability indices: An empirical investigation in a nonlinear framework," International Review of Financial Analysis, Elsevier, vol. 70(C).
    6. Algirdas Justinas Staugaitis & Bernardas Vaznonis, 2022. "Short-Term Speculation Effects on Agricultural Commodity Returns and Volatility in the European Market Prior to and during the Pandemic," Agriculture, MDPI, vol. 12(5), pages 1-26, April.
    7. Sun, Hang & Bos, Jaap.W.B. & Rodrigues, Paulo, 2023. "Destabilizing or passive? The impact of commodity index traders on equilibrium prices," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 271-285.

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    More about this item

    Keywords

    Agricultural commodities; Speculation; Index funds; Nonlinear causality;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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