The Financialization Of Commodity Markets

Financial capital has accelerated its pace into commodity markets since the dawn of 21st century. Traditional financial markets have casted increasing influences on commodity markets after 2004 especially. Meanwhile, there exhibits structural changes in commodity markets-the change of market participants, the increase trading volume and open interests, the correlation of commodity markets and traditional markets. Commodity prices depend on not only the supply and demand of the economy, but also the influence of financial investment. This paper investigates the regime of commodity market financialization of the commodity markets in the U.S. and China from different aspects.Firstly, this paper sorts out and re views the pricing theories of commodity spot markets and commodity futures markets and describe the regime of commodity markets financialization, concluding that it is financial index investment and managed funds that propels the development of this financialization.Secondly, this paper investigates the financialization of commodity markets in the USA from two aspects. The empirical results from the ARDL-ECM model indicate the increasing financialization in us commodity markets since 2000. The financial investment promotes the commodity prices significantly from 2000 to 2004 in short term. However, the linkages develop into long term since 2004. Moreover, the empirical result based on VAR-BEKK-GARCH model suggests the spill-over effects between the two markets since 2004.Finally, this paper examines the financialization of different commodity markets in China. The results of VAR-BEKK-GARCH model suggest that energy and agriculture market receive spill over from stock market, which is a sign of financialization. However, the nonferrous metal market has an opposite conclusion.