Publication in the Journal of Banking and Finance

Tom Dudda (Doctoral Candidate at the Chair of Finance and Financial Technology) and Thomas Walther (Utrecht University and Research Fellow at the Chair of Finance and Financial Technology) published their article titled “Financialization and the Drivers of Commodity Futures Returns” together with Duc K. Nguyen and Tony Klein in the Journal of Banking and Finance.

Their study investigates how the informativeness of return drivers in commodity futures markets changes with the presence of so-called financial hedgers. Financial hedgers gain commodity exposure to diversify their investment portfolios. As such, their commodity investments mainly depend on their risk-bearing capacity and the performance of other portfolio assets (e.g., stocks) rather than on commodity market fundamentals.

The authors arrive at two interesting findings. First, the predictive power of commodity return drivers changes across distinct stages of the financialization of commodity markets. Second, they use the highly financialized crude oil market to show that when the market share of financial hedgers is high, the predictive power of financial variables (e.g., stock returns) for short-term commodity returns increases. In contrast, the informativeness of fundamental variables (e.g., real activity) for longer-term returns declines.

The full article is available here.