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Abstract

We analyse the impact of index investment on four grain futures markets by applying several vector auto-regression models, generalised impulse response functions (GIRF), and a structural break analysis. We also test for effects of long-short index funds, an aspect widely ignored so far. Index funds have some price-disturbing effects. These are, however, short-term and variable. In all markets, significant effects vanish after 2010 and we conclude that markets learned and adjusted to rising index investment. GIRF of different trader types imply that index investment serves actual hedging needs and does not generally contribute to the financialisation of futures markets.

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