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Cited by 595Market Dynamics and VolatilityFinancial Markets and Investment StrategiesFinancial Risk and Volatility Modeling

A model of financialization of commodities

Open access
BASAK, SULEYMAN, PAVLOVA, ANNA·2016·The Journal of Finance
DOI 10.1111/jofi.12408
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Abstract

We analyze how institutional investors entering commodity futures markets, referred to as the financialization of commodities, affect commodity prices. Institutional investors care about their performance relative to a commodity index. We find that all commodity futures prices, volatilities, and correlations go up with financialization, but more so for index futures than for nonindex futures. The equity‐commodity correlations also increase. We demonstrate how financial markets transmit shocks not only to futures prices but also to commodity spot prices and inventories. Spot prices go up with financialization, and shocks to any index commodity spill over to all storable commodity prices.

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  • The findings of volatility spillovers between the S&P 500 (RSP) and the corn future (RM) align with the research of Silvennoinen and Thorp (2013) and Basak and Pavlova (2016).

    “In this sense, the findings of volatility spillovers between the S&P 500 (RSP) and the corn future (RM) align with the research of Silvennoinen and Thorp (2013) and Basak and Pavlova (2016).”

    From Food Financialization: Impact of Derivatives and Index Funds on Agri-Food Market Volatility (2024) · cites this paper as Basak and Pavlova (2016)

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Research works printed but not linked: 25

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  19. Henderson, Brian J., Neil D. Pearson, and Li Wang, 2015, New evidence on the financialization of commodity markets, Review of Financial Studies 28, 1285-1311.
  20. Pastor, Lubos, and Pietro Veronesi, 2012, Uncertainty about government policy and stock prices, Journal of Finance 67, 1219-1264.
  21. Pavlova, Anna, and Roberto Rigobon, 2007, Asset prices and exchange rates, Review of Fi- nancial Studies 20, 1139-1180.
  22. Routledge, Bryan R., Duane J. Seppi, and Chester S. Spatt, 2000, Equilibrium forward curves for commodities, Journal of Finance 55, 1297-1338.
  23. Shleifer, Andrei, 1986, Do demand curves for stocks slope downward? Journal of Finance 41, 579-590.
  24. Tang, Ke, and Wei Xiong, 2012, Index investment and the financialization of commodities, Financial Analysts Journal 68, 54-74.
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Authors
BASAK, S., & PAVLOVA, A.
Affiliations
  • INSEAD (FR)
  • London Business School (GB)
ORCID
Venue
The Journal of Finance
Publisher
Wiley
Published
2016-07-13
Volume
71
Issue
4
Pages
1511-1556
ISSN
  • 0022-1082 (ISSN-L)
  • 1540-6261
DOI
10.1111/jofi.12408
OpenAlex
W3008273182
Cited by
595
References
3
Citations by year
2026: 42 · 2025: 73 · 2024: 71 · 2023: 68 · 2022: 58 · 2021: 62 · 2020: 55 · 2019: 51 · 2018: 45 · 2017: 34 · 2016: 15 · 2015: 9 · 2014: 5 · 2013: 3 · 2012: 2
FWCI
94.06
Type
journal article
Language
en
Open access
Licence
onlinelibrary.wiley.com/termsAndConditions#vor (vor)
Locations
The Journal of Finance (publishedVersion)
Funders
European Research Council (StG263312)
Topics
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Market Dynamics and Volatility
  • Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
  • Social Sciences › Economics, Econometrics and Finance › Finance › Financial Risk and Volatility Modeling
Keywords
financialization of commodities, commodity futures markets, institutional investors, commodity prices, stock index futures, commodity price volatility, commodity spot prices, commodity inventories, shock transmission, storable commodities

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