The impact of long-only index funds on price discovery and market performance in agricultural futures markets

For a considerable time, long-only index funds have been suspected for being responsible for price increases on agricultural futures markets, particularly those for grain. Utilizing partial equilibrium concepts, we analyze the market impacts of long-only index funds. Our analysis reveals that long-only index funds stabilize the market. The market entry of long-only index funds lowers risk premiums, so farmers can hedge at lower costs. This gives incentives for storage and dampens seasonal price fluctuations on spot markets, which is also in favor of consumers. However, the entry of long-only index funds reduces the profitability of speculation. Thus, there is no need for political action in this particular field.


Other Titles:
Der Einfluss von Long-Only-Indexfonds auf die Preisfindung und das Marktergebnis an landwirtschaftlichen Warenterminmärkten
Issue Date:
2014
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
10.22004/ag.econ.169081
1438-2172 (Other)
Record Identifier:
https://ageconsearch.umn.edu/record/169081
PURL Identifier:
http://purl.umn.edu/169081
Total Pages:
21
JEL Codes:
G1; G13; Q02; Q14
Series Statement:
IAMO Discussion Paper
147




 Record created 2017-04-01, last modified 2020-10-28

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