Dear Colleagues,

Materially, the financialization of commodity markets began almost two centuries ago when the risks of commodity markets were transferred to financial investors through forward and other derivative contracts. However, the term has been more recently coined for when institutional investors, mainly through commodity swaps and derived indexed products, increase exposure to this market segment using modern portfolio theory as a guide. Using swap dealers as the main conduit to established futures markets, the associated institutions have been perceived as having a significant influence on price formation and, in particular, volatility. The term “financialization” is often associated with the claim that commodity price movements are being increasingly driven by financial (portfolio) considerations and less by commodity-specific factors. Some argue that this leads to excessive price volatility and, thus, to higher real costs and potential welfare losses for commercial participants in the commodity sector. These conjectures have triggered a large body of empirical research investigating the price discovery process in commodity and commodity futures markets, paying particular attention to the role of “financial” investors.

We are seeking papers that can be grouped, according to the research questions they address, into three categories: First, papers about the impact of financial investors (sometimes coined as “speculation”) on commodity price level, returns, or risk premiums. Second, papers that examine the impact of speculation on price volatility—either commodity specific or considering the market segment (index) as a whole. This also includes research on the impact of speculation on the price discovery process, i.e., the adjustment of spot vs. futures prices on macroeconomic and financial market disturbances. This leads to the third strand of research, namely the transmission of shocks between (and within) commodity markets. Such research focuses on the lead–lag relations of various market segments in relation to speculative activity (as separate from the correlation effects of financialization and their impact on risk diversification).

With this Special Issue, we seek to provide insight related to the empirical findings on financialization, including assessments of the impact of data quality, specification of variables (e.g., futures prices and returns, speculation proxies), model selection and estimation (including estimation periods), and choice of asset universe. We seek papers that are particularly focused on empirical and methodological questions and provide insight on the sensitivity of empirical findings against sample selection, variable measurement, and model specification.

Although the number of research papers on financialization has sharply increased in the past two decades, the metastudy of Haase, Seiler, and Zimmermann (J Commod Mark, 2016), covering some 100 published papers, indicates that the quality of some published papers is extremely heterogeneous in terms of methodology, data, and empirical measures, such that the results are often not traceable and difficult to compare. This calls for further, careful empirical research utilizing more recent data.

Prof. Dr. Jeffrey H. Harris
Dr. Donato Morea
Prof. Dr. Heinz Zimmermann
Guest Editors

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• commodity index trading
• speculation in commodity markets
• price discovery
• the transmission of shocks between financial markets and commodities

Title: The Impact of the Introduction of Bitcoin Futures and Their Role in Price Discovery
Authors: Denis Bieri
Affiliation: Lucerne University of Applied Sciences and Arts
Abstract: Unlike traditional assets, the role of futures contracts in the price discovery process of crypto assets remains little explored due to their recent emergence. The literature that does exist has reported inconsistent findings and is largely based on very short observation periods. This seems questionable, especially with regard to the analysis of long-term price equilibria. This essay analyzes the introduction of futures contracts for Bitcoin and their long-term role in price discovery for the asset, both indirectly and directly, based on cointegration approaches. First, comparing pre- and post-futures periods, we find evidence that the introduction of Bitcoin futures has changed price discovery among the leading spot markets. Second, the futures markets are demonstrated to have taken over the role of the main contributor in Bitcoin price formation since their introduction. The higher information efficiency of futures markets is attributed to, among other factors, the influx of institutional investors, who are assumed to be better informed than private investors, driven by the introduction of regulated indirect investment vehicles.

Title: Time-varying deterministic volatility model for options on wheat futures (working title)
Authors: Marco Haase; Jacqueline Henn
Affiliation: -
Abstract: `-