Financialization and the Returns to Commodity Investments

Financialization and the Returns to Commodity Investments. Main, S., Irwin, S. H, Sanders, D. R, & Smith, A. Journal of Commodity Markets, 10:22–28, Elsevier, 2018.

Paper abstract bibtex

No. We show that managed money traders tend to change positions in the same direction as prices, whereas commercial firms change positions in the opposite direction. Using insights from difference of opinion theory, we conclude that managed money traders have strong beliefs about the markets and trade aggressively. Commercial firms are willing to take the other side of these trades, and thus they provide liquidity to managed money firms. However, we find no evidence that this trading dynamic results in prices that deviate significantly from supply and demand fundamentals.

@article{main2018financialization,
  title={Financialization and the Returns to Commodity Investments},
  author={Main, Scott and Irwin, Scott H and Sanders, Dwight R and Smith, Aaron},
  journal={Journal of Commodity Markets},
  volume={10},
  pages={22--28},
  year={2018},
	url={https://files.asmith.ucdavis.edu/2018_JCommMkt_MISS_financialization.pdf},
	keywords={commodities},
	abstract={No. We show that managed money traders tend to change positions in the same direction as prices, whereas commercial firms change positions in the opposite direction. Using insights from difference of opinion theory, we conclude that managed money traders have strong beliefs about the markets and trade aggressively. Commercial firms are willing to take the other side of these trades, and thus they provide liquidity to managed money firms. However, we find no evidence that this trading dynamic results in prices that deviate significantly from supply and demand fundamentals.},
  publisher={Elsevier}
}

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