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

Der Einfluss von Long-only-Indexfonds auf die Preisfindung und das Marktergebnis an landwirtschaftlichen Warenterminmärkten

Sören Prehn, Thomas Glauben, Jens-Peter Loy, Ingo Pies and Matthias Georg Will

No 147, IAMO Discussion Papers from Leibniz Institute of Agricultural Development in Transition Economies (IAMO)

Abstract: For a considerable time, long-only index funds have been suspected of 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.

Keywords: agricultural futures markets; price discovery; long-only index funds; Landwirtschaftliche Warenterminmärkte; Preisbildung; Long-only-Indexfonds (search for similar items in EconPapers)
JEL-codes: G1 G13 Q02 Q14 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-agr
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/97151/1/786370378.pdf (application/pdf)

Related works:
Working Paper: The impact of long-only index funds on price discovery and market performance in agricultural futures markets (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:iamodp:147

Access Statistics for this paper

More papers in IAMO Discussion Papers from Leibniz Institute of Agricultural Development in Transition Economies (IAMO) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().