Financialisation of Food Commodity Markets, Price Surge and Volatility: New Evidence


Recent literature points towards the role of speculators in exaggerating the rally in food prices, over and above that explained by the fundamentals of demand and supply. Some studies argue that futures market speculation can only be blamed for the increasing food prices if it is accompanied by hoarding. With this background, the issues that the present chapter deals with are: (i) assessing the impact of indices such as S&P500, and MSCI on commodity prices; and (ii) tracing the volatility patterns in commodity prices, and linking volatility in commodity markets to these variables.Our results show a negative relationship between the commodity market returns and the Dollex, and a positive relationship between commodity market returns and crude oil price returns. The impact of equity markets, inflation and emerging market performance on commodity markets is weak. We also find some evidence of reverse causality or mutual endogeneity, for instance, causality from GSCI, S&P500 and WTI to MSCI, CPI to WTI, and MSCI, S&P500 to Dollex. We also study the causal relationships between the volatility of returns on macroeconomic variables and commodity markets, using the cross-correlation function, and Granger causality tests. Our results confirm unidirectional relationship from (volatilities of) GSCI to S&P500, from GSCI to MSCI, and from Dollex to GSCI. But there is also evidence of atwo-way causality between Inflation and GSCI (volatilities). Thus, the case for financialisation of commodity/food markets driving commodity/food returns and their volatility rests on weak foundations, leaving the door open for the pivotal role of supply-demand fundamentals.


Commodity Markets, Financialisation, Prices, Volatility, Speculation, Demand and Supply Fundamentals


Kritika MATHUR
University of Delhi, India

Ambedkar University Delhi, India

Raghav GAIHA
Department of Global Health and Population Studies, Harvard School of Public Health, USA

Katsushi S. IMAI
School of Social Sciences, University of Manchester,UK
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059

Ganesh THAPA
International Fund for Agricultural Development, Italy