Campuses:

A Feedback Model for the Financialization of Commodities Prices

Thursday, May 17, 2012 - 9:30am - 10:15am
Keller 3-180
Ronnie Sircar (Princeton University)
Tang and Xiong (2009) discuss the financialization of commodities markets as a
result of increased index investing activity in the past decade. They find empirical
evidence of increased exposure of commodities prices to shocks to other asset
classes. We build a feedback model to try and capture some of these effects in which
traditional economic demand for a commodity, oil say, is perturbed by the influence
of portfolio optimizers. The analysis reveals correlation effects proportional to the
long or short positions of the investors, along with a lowering of volatility.
MSC Code: 
91G80