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Abstract
Recent accusations against speculators in general and long-only commodity index funds in
particular, include: increasing market volatility, distorting historical price relationships, and
fueling a rapid increase and decrease in commodity inflation. Some researchers have argued that
these market participants—through their impact on market prices—may inadvertently prevented the
efficient distribution of food aid to deserving groups. Certainly, this result—if substantiated—
would counter the classical argument that speculators make prices more efficient and thus improve
the economic efficiency of the agricultural and food marketing system. Given the very important
policy implications, it is crucial to develop a more thorough understanding of long-only index funds
and their potential market impact. Here, we review the criticisms (and rebuttals) levied against
(and for) commodity index funds in recent U.S. Congressional testimonies. Then, additional
empirical evidence is added regarding cross-sectional market returns and the relative levels of
long-only index fund participation in 12 commodity futures markets. The results suggest that index
fund positions across futures markets have no impact on relative price changes across those
markets. The empirical results provide no evidence that long-only index funds impact commodity
futures prices.