grosche (2015)
TRANSCRIPT
Stephanie Grosche
Financial index trading and commodity prices:
the search for a causal link
2 Stephanie Grosche, ILR, University of Bonn 7 August 2015
Parallel development of financial index trading long positions and futures prices
Soybeans
Wheat
Corn
Futures markets
? Direct causal link
Source: CFTC, Bloomberg, Irwin and Sanders (2011)
Focus questions and outline
What are the results?
What conclusions can we draw?
How should we move on?
3 Stephanie Grosche, ILR, University of Bonn 7 August 2015
? Granger Causality tests:
15 studies (2009-14)
What is financial index trading...?
Fund manager
Fund volume
Futures contracts
Futuresmärkte
Commodity future market
€
Investment volume
Return
Commodity index
4 Stephanie Grosche, ILR, University of Bonn 7 August 2015
Investor
The bivariate Granger Causality testing approach
5 Stephanie Grosche, ILR, University of Bonn 7 August 2015
Index positions
Price level/
volatility
t-i t
CFTC Reports
weekly daily
“buy-side pressure”
“information shocks”
Important results in a nutshell
6 Stephanie Grosche, ILR, University of Bonn 7 August 2015
few findings of GC
most outside grains markets
unclear direction of price effect (+/-)
+
_
evidence for reverse causality
No direct causal conclusions possible…
!
GC may be disproved by including fundamentals
7 Stephanie Grosche, ILR, University of Bonn 7 August 2015
€ …
Funda-mentals
Funda-mentals
prima facie causality that may be disproved (robustness checks required)
no evidence for a true direct causal link
No GC can result from informational efficiency of markets
8 Stephanie Grosche, ILR, University of Bonn 7 August 2015
Volume
Type …
9 Stephanie Grosche, ILR, University of Bonn 7 August 2015
Volume
Type …
weekly: public null: no GC
daily: private null: GC
No GC can result from informational efficiency of markets
10 Stephanie Grosche, ILR, University of Bonn 7 August 2015
Volume
Type …
E[V,T]
No GC can result from informational efficiency of markets
11 Stephanie Grosche, ILR, University of Bonn 7 August 2015
can be result of market efficiency with respect to existing or forecast information (reverse GC)
no evidence against a true direct causal link
Volume
Type …
E[V,T]
No GC can result from informational efficiency of markets
Thinking beyond direct causality
12 Stephanie Grosche, ILR, University of Bonn 7 August 2015
…
Variable network
Condition vs. cause
Information transmission
Composite shocks
Structural modeling approaches promising
Improve policy analysis capabilities