Financialization of Commodity Markets: An Empirical Analysis of the Effect of Financialization on Commodity Futures Price Behaviour

Andreas Specht Skov

Student thesis: Master thesis

Abstract

Building on the increasing research of commodity futures markets this paper seeks to indentify theeffect of the financialization of the commodity markets which took place in the late around the turnof the century. The focus of this paper specifically is the price behaviour of commodity markets, andas such how financialization has affected commodities correlation with financial assets as well as theprice behaviour in a vacuum. To identify any change, the framework of this paper is based on anevent study methodology, this allows for a comparative analysis of the results. From this the inter –correlation of commodity futures markets, along with their correlation to other financial assets andinflation is calculated – using both Pearson and Spearman correlation figures. To model the pricebehaviour I adopt a non-parametric fractal dimension and Hurst exponent approach, conductingMonte-Carlo simulations of estimators to determine their precision and normality. Using both, HallWood, Variogram, Periodogram and R/S estimation technique, I find very little significant evidencethat the persistence of price changes in commodities futures markets has changed using a simplestudent T-test. I do however find that most correlation parameters were positively statisticallysignificant using the Fisher transform and Z-statistics on correlation parameters. By default theresults obtained can attribute changes to the financialization event that may be attributed tosomething else happening during the same period. I conclude that there is not enough evidence of afinancialization effect on the price change persistence in the studied sample. There does howeverseem to be a financialization effect on the correlation parameters and I cannot reject the nullhypothesis of no effect.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2016
Number of pages85