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| Title: | Does the Masters Hypothesis Explain Recent Food Price Spikes? |
| Authors: | Irwin, Scott H. |
| Authors (Email): | Irwin, Scott (sirwin@illinois.edu) |
| Keywords: | agriculture
futures markets
index investment
Masters Hypothesis
speculation |
| JEL Codes: | D84
G12
G13
G14
Q13
Q41 |
| Issue Date: | 2012-06 |
| Series/Report no.: | SPAA working papers
2012-11 |
| Abstract: | The Masters Hypothesis is the claim that unprecedented buying pressure in recent years from commodity index investors created massive bubbles in food and energy prices. A number of recent studies investigate the empirical relationship between index investment and price movements in agricultural futures markets. One line of research uses time-series regression
tests, such as Granger causality tests, to investigate the relationship between price movements and index positions. This research provides very little evidence supporting the Masters Hypothesis in agricultural futures markets. A second line of research uses cross-sectional regression tests and studies in this area also provide very limited evidence in favor of the Masters Hypothesis for agricultural futures markets. A third line of research investigates whether there is a significant relationship between commodity index trading and the difference,
or spread, between futures prices of different contract maturities. These studies provide a range of results depending on the type of test. However, the bulk of the evidence indicates either no relationship or a negative relationship, which is once again inconsistent with the Masters Hypothesis. Overall, this growing body of literature fails to find compelling evidence that buying
pressure from commodity index investment in recent years caused a massive bubble in
agricultural futures prices. The Masters Hypothesis is simply not a valid characterization of reality. |
| URI: | http://purl.umn.edu/126944 |
| Institution/Association: | Structure and Performance of Agriculture and Agri-products industry Network (SPAA)>Working Papers |
| Total Pages: | 37 |
| Collections: | Working Papers
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| S_Irwin_Working Paper_SPAA_2012_11.pdf | | 381Kb | PDF | View/Open |
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