Financial market speculation did not cause the price bubble in agricultural futures markets in 2007-08, according to a preliminary study prepared by two US academics for the OECD.

Professors Scott Irwin, of the University of Illinois, and Dwight Sanders, of the University of Southern Illinois found the amount of money flowing into commodity index funds increased substantially in the period from 2006 to 2008. But although this increase represents a major structural change in investor participation in agricultural commodities futures, it has not increased price volatility, according to the study.

The paper said there is “no convincing evidence that positions held by index traders or swap dealers impact market returns.

“These results tilt the weight of the evidence even further in favour of the argument that index funds did not cause a bubble in commodity futures prices.”

Commenting on the paper, OECD Secretary-General Angel Gurría said: “This is a preliminary study and further research is needed to understand better the recent structural changes in futures markets and how they may impact prices. Such work is an important contribution to the debate surrounding regulation of futures trading in commodity markets.”

Source: OECD


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s