Bubbles, Food Prices, and Speculation: Evidence from the Cftc&Apos;S Daily Large Trader Data Files

63 Pages Posted: 24 May 2013 Last revised: 4 Feb 2021

See all articles by Nicole Aulerich

Nicole Aulerich

Commodity Futures Trading Commission (CFTC)

Scott H. Irwin

University of Illinois at Urbana-Champaign

Philip Garcia

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

Date Written: May 2013

Abstract

The "Masters Hypothesis" is the claim that unprecedented buying pressure from new financial index investors created a massive bubble in agricultural futures prices at various times in recent years. This paper analyzes the market impact of financial index investment in agricultural futures markets using non-public data from the Large Trader Reporting System (LTRS) maintained by the U.S. Commodity Futures Trading Commission (CFTC). The LTRS data are superior to publicly-available data because commodity index trader (CIT) positions are available on a daily basis, positions are disaggregated by contract maturity, and positions before 2006 can be reliably estimated. Bivariate Granger causality tests use CIT positions in terms of both the change in aggregate new net flows into index investments and the rolling of existing index positions from one contract to another. The null hypothesis of no impact of aggregate CIT positions on daily returns is rejected in only 3 of the 12 markets. Point estimates of the cumulative impact of a one standard deviation increase in CIT positions on daily returns are negative and very small, averaging only about two basis points. The null hypothesis that CIT positions do not impact daily returns in a data-defined roll period is rejected in 5 of the 12 markets and estimated cumulative impacts are negative in all 12 markets; the opposite of the expected outcome if CIT rolling activity simultaneously pressures nearby prices downward and first deferred prices upward. Overall, the results add to the growing body of literature showing that buying pressure from financial index investment in recent years did not cause massive bubbles in agricultural futures prices.

Suggested Citation

Aulerich, Nicole and Irwin, Scott and Garcia, Philip, Bubbles, Food Prices, and Speculation: Evidence from the Cftc&Apos;S Daily Large Trader Data Files (May 2013). NBER Working Paper No. w19065, Available at SSRN: https://ssrn.com/abstract=2269479

Nicole Aulerich (Contact Author)

Commodity Futures Trading Commission (CFTC) ( email )

1155 21st Street NW
Washington, DC 20581
United States

Scott Irwin

University of Illinois at Urbana-Champaign ( email )

344 Mumford Hall
1301 W. Gregory Dr.
Urbana, IL 61801
United States
217-333-6087 (Phone)

HOME PAGE: http://https://scotthirwin.com/

Philip Garcia

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics ( email )

1301 W. Gregory Drive
427 Mumford Hall
Urbana, IL 61801
United States
217-333-0644 (Phone)
217-333-5538 (Fax)

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