Sunday, June 28, 2015

Commodity index investing

Commodity Index investing and commodity futures prices - Stoll and Whaley (2009)

Provide a comprehensive evaluation of whether commodity index investing is a disruptive force in commodity futures market in general. Institutional investors are active in it because of low correlation with stocks and bonds using managed futures, ETF, ETN and OTC return swaps. main conclusions are a) commodity index investment is not speculation b) rolls have little futures price impact, and inflows and outflows from index do not cause the prices to change. c) failure of wheat futures to converge to the cash price at expiration has not undermined the futures contract's effectiveness as a risk management tool.

Limits to Arbitrage and Commodity Index investment: front-running the Goldman roll - Mou (2011)

Rolling causes price impact. Front running has shown IR of 4.4 from 2000 to 2010. Profitability is positively correlated to size of index investment and amount of arbitrage capital employed. Talks about pre-rolling 10-1 business days before GSCI rolling.

Speculators, Index investors, and commodity prices - Greely, Currie (2008)

Index investors take the risk of prices (away from producers) and hence do not bring any information and do not effect the prices. Speculators bring information about supply and demand and effect the prices. These activities in turn lowers the cost of capital to commodity producers.

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