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EFFECTS OF INDEX‐FUND INVESTING ON COMMODITY FUTURES PRICES
Author(s) -
Hamilton James D.,
Wu Jing Cynthia
Publication year - 2015
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12099
Subject(s) - futures contract , notional amount , index (typography) , commodity pool , economics , contango , financial economics , forward market , arbitrage , commodity , index fund , commodity swap , monetary economics , passive management , finance , institutional investor , market liquidity , fund of funds , open end fund , corporate governance , world wide web , computer science
We develop a simple model of futures arbitrage that implies that if purchases by commodity index funds influence futures prices, then the notional positions of the index investors should help predict excess returns in these contracts. We find no evidence that the positions of index traders in agricultural contracts as identified by the Commodity Futures Trading Commission can help predict returns on the near futures contracts. Although there is some support that these positions might help predict changes in oil futures prices over 2006–2009, the relation breaks down out of sample.