Research On The Impact Of Commodity Financialization On Financial Market Stability

Since the 21 st century,under the pressure of global economic slowdown and stagflation,short-term investment funds have poured into the highly volatile commodity financial derivatives market,and long-term asset allocation strategies also prefer commodity index financial products with anti-inflation and risk diversification characteristics.Especially after the global financial crisis in 2008,global central banks represented by the Federal Reserve responded to the liquidity crisis with quantitative easing policies.The ensuing flood of liquidity and the relative depreciation of the US dollar created favorable conditions for the bull market of international commodity prices denominated in US dollars.In the post-crisis period,the commodity market also showed superior returns than the equity and bond markets,thus attracting more and more investors’ attention.The commodity investment boom gradually developed into the phenomenon of commodity financialization,especially in the commodity futures market where the market size increased and liquidity became more abundant.Nowadays,there are more and more channels and ways for financial institutional investors and even individual investors to participate in commodity financial derivatives transactions,and the degree of commodity financialization is likely to be further improved.In the context of global geopolitical conflicts,intensified international trade frictions and the impact of COVID-19,the factors affecting commodity market price fluctuations and risk transmission have undergone profound changes.An in-depth study on the phenomenon of commodity financialization and its impact on financial market stability,especially the negative impact of excessive commodity financialization on financial market stability,It is not only necessary for theoretical research,but also helpful for policy makers to take appropriate measures to prevent and control financial risks and maintain long-term stability of financial markets.China is building a new system of open economy,and an important part of economic opening-up is to steadily promote financial opening-up.With the rapid development of the commodity financial derivatives market,the variety is constantly enriched,the market scale is constantly expanded,and the derivative system is constantly improved,the openness of the commodity financial derivatives market is increased,attracting more and more investors from all over the world.In 2022,the trading volume of China’s futures and options market only accounted for 8.07% of the world’s total,while the trading volume of commodity futures and options accounted for 72.3%.The financialization of China’s commodity financial derivatives market deserves attention.Under the new development pattern of "dual circulation",how to measure the degree of commodity financialization in China and its influence,especially the influence on the financial market,is particularly important.Therefore,from an open perspective,this paper studies the data of commodity financial derivatives markets in the United States and China,where the phenomenon of commodity financialization is the most prominent,and systematically reviews the formation mechanism of commodity financialization and the action mechanism affecting the stability of financial markets.Based on the US financial market data from 2000 to 2020 and the Chinese financial market data from2010 to 2019,this paper conducts an empirical analysis to investigate the impact of commodity financialization on financial market stability.It deeply analyzes the logic of the role of commodity financialization in the financial market,discusses the influence mechanism of commodity financialization on the stability of the financial market through investor behavior and economic fluctuations respectively,and gives full play to the positive externalities of moderate commodity financialization in improving the efficiency of the financial market and promoting financial stability.It is of great theoretical significance and practical value to prevent the potential financial risks of excessive commodity financialization and economy from real to virtual.This paper takes the impact of commodity financialization on financial market stability as its core research content,follows the research paradigm of "question raising--problem analyzing--problem solving",and follows the logical sequence of "theoretical framework--qualitative analysis--empirical test",and conducts theoretical analysis and empirical research on how commodity financialization affects financial market stability.Firstly,from the aspects of economic structure optimization and adjustment,policy-guided financial innovation and investors’ motivation of diversified financial transactions,this paper analyzes the external environment and internal driving factors that promote the formation of commodity financialization,and systematically explains the formation mechanism of commodity financialization.Secondly,it illustrates the channels and mechanisms that commodity financialization affects the stability of financial markets.Under the framework of financial accelerator theory,the commodity price shock will be multiplied by the risk of futures market,and form a positive feedback spiral of "expected confirmation → price changes as expected → further strengthening of expectations" under the participation of the price trend and the "herd effect" of financial investors.Moreover,the spillover effect of commodity financialization will spread the risk of price volatility to the capital market.Thus exacerbating the financial market vulnerability.Finally,by introducing financialization factors to expand the theoretical model of commodity pricing,it reveals that commodity financialization affects the stability of financial markets through the information transmission of financial derivatives market.The study found that:Firstly,commodity financialization acts on variables such as commodity price fluctuation,commodity price level,inflation rate and exchange rate fluctuation through three vertical logical veins: monetary channel,risk channel and exchange rate channel,and then affects the stability of financial market.Moderate commodity financialization can promote the stability of financial market,while excessive commodity financialization can aggravate the fragility of financial market.On the one hand,commodity financialization directly affects the stability of financial market through market information transmission;On the other hand,it indirectly affects the stability of financial market through the risk adjustment mechanism of investor sentiment and the stabilization mechanism of exogenous shock of commodity price.Secondly,in the commodity index markets of China and the United States,commodity financialization is most affected by the short-term impact of commodity prices;Financial market stability is affected by commodity financialization,especially in commodity index market.Compared with commodity supply,demand and price,financial market stability is dominated by the degree of commodity financialization in the short term.The degree of commodity financialization has a more significant negative impact on financial market stability in the short term than in the long term.In the long run,the financial market stability is dominated by commodity prices,while the influence of commodity financialization is weak.It is further confirmed by the threshold model that the degree of commodity financialization has a stronger short-term influence on the stability of the financial market in the high volatility environment than in the low volatility environment.Thirdly,after controlling the factors related to macroeconomic and market environment,commodity financialization has significant explanatory power for financial market stability;The positive moderating effect of positive investor sentiment on financial market stability is more significant than that of negative investor sentiment,especially in metal commodities and energy and chemical products.Through the heterogeneity analysis of commodity types,investor sentiment direction and trend,it is found that there is a positive adjustment mechanism of investor sentiment in metal commodities,energy chemicals and agricultural products.Through the alternative regression method of grouping according to the individual dimension(commodity type)and the time dimension(before and after COVID-19)of the degree of commodity financialization,the empirical results are still robust.Fourthly,under the exogenous impact of commodity prices,moderate commodity financialization can cushion macroeconomic fluctuations through the price shock calming mechanism,thus promoting the stability of financial markets,while excessive commodity financialization will cause the decline of investment returns,lead to continuous negative investment growth and economic volatility,and further reduce the stability of financial markets.The degree of financial openness and the efficiency of financial market unsymmetrically regulate the influence of commodity financialization on financial market stability.Among them,the closer to the complete financial opening environment,the more significant the effect of commodity financialization on economic fluctuation stabilization;The lower the efficiency of financial market will lead to the more unstable the economic fluctuation calming effect of commodity financialization.Therefore,the financial market reform and financial opening process of the policy formulation should be included in commodity financialization factors.Based on the above research conclusions,this paper puts forward some policy suggestions,such as strengthening investor guidance and regular supervision,enhancing the identification of investors’ trading motivation,smoothing the policy transmission path and encouraging financial services to serve the real economy.First,refine the identification of investors’ trading motives and position attributes,improve the normal regulatory system,and establish a relatively high-frequency investor position reporting system.Second,reasonably guide investors’ commodity investment behavior,improve the commodity financial derivatives market system under the background of financial openness,and prevent and defuse financial risks.Third,reduce friction in the financial market,optimize the institutional arrangement of the financial market,dredge the policy transmission path of the financial market and improve market liquidity by improving the market maker system.Fourth,adhere to the origin of financial services for the real economy,reasonably distinguish hedging transactions with spot trade background from financial speculation transactions,encourage the real economy with hedging needs to use commodity derivatives market to prevent risks and allocate resources,provide convenience for industrial investors to carry out hedging and risk management,promote financial capital from virtual to real,and maintain long-term stability of the financial market.