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Estimating the Impact of Financial Investments on Agricultural Futures Prices using Changes in Volatility
Author(s) -
Hachula Michael,
Rieth Malte
Publication year - 2020
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aaz024
Subject(s) - futures contract , economics , speculation , volatility (finance) , index (typography) , financial economics , boom , demand shock , monetary economics , econometrics , finance , environmental engineering , world wide web , computer science , engineering
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.