Financialization and the rise in co-movement of commodity prices

Pradhananga, Manisha

doi:10.1080/02692171.2016.1146875

Cited by 20 publications

(15 citation statements)

References 17 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Similarly, Le Pen and Sevi [20] find that the measures of traders' hedging and speculative activities calculated from the CFTC data have significant explanatory power concerning the excess comovement among commodities. Furthermore, applying the factor-augmented VEC model to common factors extracted from commodity prices, the total open interest of commodity futures (a proxy for the financialization of commodity markets), and several macroeconomic variables, Pradhananga [24] shows that open interest significantly affects other variables and that financialization of commodity markets causes the rise in the comovement of unrelated commodity prices.…”

Section: Review Of Related Literaturementioning

confidence: 99%

Increasing trends in the excess comovement of commodity prices

Ōhashi

Okimoto

2016

Journal of Commodity Markets

View full text Add to dashboard Cite

In this paper, we investigate whether excess correlations among seemingly unrelated commodity returns have increased recently, and if so, how they were achieved. To this end, we generalize the model of excess comovement, originated by Pindyck and Rotemberg (1990) and extended by Deb, Trivedi, and Varangis (1996), to develop the smooth-transition dynamic conditional correlation (STDCC) model that can capture long-run trends and short-run dynamics in excess comovements. Using commodity returns data from 1983 to 2011, we find that significant increasing long-run trends in excess comovements have appeared since around 2000 in all pairs of agricultural raw materials, beverages, metals, and oils. We confirm that these increasing trends are robust and are not artifacts of the recent financial crisis or changes in the effects of common macroeconomic factors. Moreover, unlike the results above, we find no significant increasing trends in excess comovements among off-index commodity returns. Those findings provide additional evidence for the recent debates about the effect of financialization on commodity-return correlations.

show abstract

Section: Review Of Related Literaturementioning

confidence: 99%

Increasing trends in the excess comovement of commodity prices

Ōhashi

Okimoto

2016

Journal of Commodity Markets

View full text Add to dashboard Cite

show abstract

“…A full review of the research on financialization lies outside the scope of this survey. By way of brief introduction, however, this literature explores the relationship between financialization and a range of both financial and nonfinancial outcomes, including household debt (Scott and Pressman, ; Kim, ); macroeconomic dynamics (Boyer, ; Aglietta and Breton, ; Skott and Ryoo, ; van Treeck, ); inequality in both the personal and functional distributions of income (Onaran et al ., ; Lin and Tomaskovic‐Devey, ; Dünhaupt, ; Hein, ; Kohler et al ., ; Stockhammer, ); and commodities markets and food prices (Gosh, ; Isakson, ; Pradhananga, ).…”

mentioning

confidence: 99%

Financialization and Investment: A Survey of the Empirical Literature

Davis

2017

Journal of Economic Surveys

View full text Add to dashboard Cite

An expanding literature analyses the implications of the post‐1980 expansion of finance in advanced economies – a process summarized as ‘financialization’ – for capital accumulation. This paper surveys the empirical literature on financialization and investment to take stock of where we are and to identify questions for further research. Because ‘financialization’ is widely recognized to be ambiguously defined, I first introduce empirical indicators of financialization in this literature. This categorization elucidates three approaches to measuring financialization in the context of investment. The first two approaches emphasize rising income flows between nonfinancial corporations (NFCs) and finance: first, growth in NFCs’ financial incomes and, second, growth in NFCs’ payments to creditors and shareholders. Rising financial profits are, notably, widely used to suggest financial assets and incomes ‘crowd out’ physical investment. I contend that these flow‐based indicators of financialization capture important relationships between changes in firm financial behaviour and investment, but also raise questions about determinants underlying NFCs’ changing portfolio and financing decisions. The third approach to defining financialization emphasizes the best‐developed behavioural explanation linking financialization to reduced investment: shareholder value orientation. In future research, scope remains for further attention to behavioural drivers of the empirical trends summarizing financialization.

show abstract

“…He further mentions that the possibility of a cointegration between metals that share a same field of consumption cannot be neglected; suggesting further research is required in order to analyze this effect in detail. In investigating the co-movements of metal prices, Pradhananga (2016) argues that the price of metals that share common application field may move together and that a demand shock in a particular metal can be transmitted to the companion metal. Similarly, Jerrett and Cuddington (2008), who observed price trends and cycles in prices of steel, pig iron and molybdenum, suggests that there are significantly higher chances of similar trends in metal prices if the prices are driven by demand as opposed to supply shocks.…”

Section: Literature Reviewmentioning

confidence: 99%