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Volume 41, Number 02, August 2009 >
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http://purl.umn.edu/53083
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| Title: | Devil or Angel? The Role of Speculation in the Recent Commodity Price Boom (and Bust) |
| Authors: | Irwin, Scott H.
Sanders, Dwight R.
Merrin, Robert P. |
| Keywords: | commodity
futures
index fund
market
speculation |
| JEL Codes: | Q11
Q13 |
| Issue Date: | 2009-08-01 |
| Abstract: | It is commonly asserted that speculative buying by index funds in commodity futures and
over–the–counter derivatives markets created a ‘‘bubble’’ in commodity prices, with the result
that prices, and crude oil prices, in particular, far exceeded fundamental values at the peak.
The purpose of this paper is to show that the bubble argument simply does not withstand close
scrutiny. Four main points are explored. First, the arguments of bubble proponents are
conceptually flawed and reflect fundamental and basic misunderstandings of how commodity
futures markets actually work. Second, a number of facts about the situation in commodity
markets are inconsistent with the existence of a substantial bubble in commodity prices.
Third, available statistical evidence does not indicate that positions for any group in commodity
futures markets, including long–only index funds, consistently lead futures price
changes. Fourth, there is a historical pattern of attacks upon speculation during periods of
extreme market volatility. |
| URI: | http://purl.umn.edu/53083 |
| Institution/Association: | Journal of Agricultural and Applied Economics>Volume 41, Number 02, August 2009 |
| From Page: | 377 |
| To Page: | 391 |
| Collections: | Volume 41, Number 02, August 2009
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| jaaeip3.pdf | Irwin | 700Kb | PDF | View/Open |
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