Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
960985 | Journal of Financial Markets | 2014 | 28 Pages |
Abstract
Trading by commodity index traders (CITs) has become an important aspect of financial markets over the past 10 years. We develop an equilibrium model of trader behavior that relates uninformed CIT trading to futures prices. A key implication of the model is that CIT trading reduces the cost of hedging. We test the model using a unique non-public dataset that allows us to precisely identify trader positions. We find evidence, consistent with the model, that index traders have become an important supply of price risk insurance.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Celso Brunetti, David Reiffen,