Does speculation with agricultural commodity futures cause price bubbles in the event of negative production shocks?
Tobias Thürer
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Tobias Thürer, Does speculation with agricultural commodity futures cause price bubbles in the event of negative production shocks? (2016), Logos Verlag, Berlin, ISBN: 9783832594190
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Beschreibung / Abstract
Since the mid 2000s, an increasing financialization of commodity futures markets is taking place. This has fueled an ongoing discussion about the effect of financial investments on the development of commodity prices. Against this background, the trading activities of financial speculators also come to the fore. There is the concern that such speculators can cause irrational overshootings of agricultural commodity prices, e.g. in the event of global production shocks.
In such an event the decrease of total supply induces a price surge menacing food security in developing countries. Yet, the question emerges whether speculation aggravates this price increase, eventually inducing a price bubble. The relevance of this concern is reinforced by the fact that due to climate change an increased frequency and severity of global agricultural production shortfalls is at stake. If speculation evokes an additional threat to food security in the event of a production shock, the political agenda should not be confined to focus solely on the adaptation to climate change. Instead, it is then also necessary to address speculative activities on agricultural commodity markets.
This book scrutinises whether speculative bubbles can be identified in the event of severe global production shocks. For this, a framework for tracing the transmission of the futures price's development on the spot market is developed. Using annual data from 1979-2012 for maize it is analysed whether production shock related price bubbles occurred.
In such an event the decrease of total supply induces a price surge menacing food security in developing countries. Yet, the question emerges whether speculation aggravates this price increase, eventually inducing a price bubble. The relevance of this concern is reinforced by the fact that due to climate change an increased frequency and severity of global agricultural production shortfalls is at stake. If speculation evokes an additional threat to food security in the event of a production shock, the political agenda should not be confined to focus solely on the adaptation to climate change. Instead, it is then also necessary to address speculative activities on agricultural commodity markets.
This book scrutinises whether speculative bubbles can be identified in the event of severe global production shocks. For this, a framework for tracing the transmission of the futures price's development on the spot market is developed. Using annual data from 1979-2012 for maize it is analysed whether production shock related price bubbles occurred.
Inhaltsverzeichnis
- BEGINN
- 1. Introduction
- 2. The Efficiency of Financial Markets With Special Reference to Commodity Futures Markets - A Review
- 2.1 The Efficient Market Hypothesis vs. Behavioural Finance Theories: Insights into the Efficiency of Financial Markets
- 2.2 Assessing the Efficiency of Commodity Futures Markets with Cointegration Tests
- 2.3 Increased Index Funds Activities on Commodity Markets
- 2.4 Summary of the Literature Review
- 3. The Competitive Storage Model - Interlinking Commodity Price Expectations and Current Spot Prices
- 3.2 The Empirical Evidence of the Competitive Storage Model
- 4. The Storage Transmission Mechanism - Modelling the Effects of Overshooting Commodity Futures Prices on Spot Prices
- 4.1 Excessive Storage and its Effects on Spot Prices
- 4.2 Reflections on the Storage Transmission Mechanism under Consideration of the Literature
- 4.3 Research Hypotheses
- 5. Methodology and Data
- 5.1 Maize as Object of Investigation and its Cultivation Periods
- 5.2 Test Methods
- 5.3 Data
- 6. Statistical Characteristics of Maize Production and Prices
- 6.1 Global Maize Production and Yield - Long Term Trends and Shocks
- 6.2 Properties of Spot Price Time Series
- 7. The Empirics of Commodity Price Bubbles and Storage
- 7.1 The Results of the Hypotheses Tests
- 7.2 Critical Reflections of the Empirical Results - Limitations of the Study
- 8. Conclusion
- Bibliography
- Databases
- Internet Sources
- Annexes