Wednesday 29 January 2014, 1.00PM to 2.00pm
Speaker(s): Rod McCrorie, University of St Andrews
This paper provides a systematic investigation of the empirical properties of a range of key commodity futures prices, providing a robust evidence base upon which to assess various explanations of commodity futures price movements. We utilize the new statistical methodology proposed by Phillips, Wu and Yu (2011, International Economic Review 52, 210-226) and Phillips and Yu (2011, Quantitative Economics 2, 455-491) that allows date-stamping of the origination and collapse of bubbles, in a form where critical values are robustified to allow for possibly different data spans and sampling frequencies. Our substantive findings are that commodity futures markets are prone to bubble-like phenomena and were especially so during the financial crisis in late 2007 and early 2008. We identify bubbles around that time in energy, grains, and oils and oilseeds, but not in livestock or softs; and the bubbles lasted for up to six months. Our key finding is that bubble incidence is more closely related to the supply and demand for market fundamentals than it is to financialization. We conclude that the evidence base that underlies regulators’ actions in the light of the financial crisis “to diminish, eliminate, or prevent excessive speculation” in commodity futures markets is only weakly supportive at best.
Location: ARRC Auditorium (A/RC/014)