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Financialization and Structural Change in Commodity FuturesMarkets

Published online by Cambridge University Press:  26 January 2015

Scott H. Irwin
Agricultural Marketing, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, Urbana, Illinois
Dwight R. Sanders
Department of Agribusiness Economics, Southern Illinois University Carbondale, Carbondale, Illinois
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The first decade of the 21st century has perhaps witnessed morestructural change in commodity futures markets than all previous decadescombined. Not only have trading volumes and open interest increasedmarkedly, but this time period also saw historic changes in both trading andparticipants. The available literature indicates that the irrational andharmful impacts of the structural changes in commodity futures markets overthe last decade have been minimal. In particular, there is little evidencethat passive index investment caused a massive bubble in commodity futuresprices. There is intriguing evidence of several other rational andbeneficial impacts of the structural changes over the last decade. Inparticular, the expanding market participation may have decreased riskpremiums, and hence, the cost of hedging, reduced price volatility, andbetter integrated commodity markets with financial markets.

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Copyright © Southern Agricultural Economics Association 2012

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