Financialization and Commodity Market Stability

Abstract

33The ar� cle is an eff ect of the project -"Financializa� on-impact on the economy and society"-interna� onal conference, conducted by the University of Informa� on Technology and Management in Rzeszów with Narodowy Bank Polski under the scope of economic educa� on programme J Ż 1 AbstractStability in supply of commodi� es is essen� al for manufacturing and doing business. This fact is unchangeable despite the passage of � me and only the ways of trading of commodi� es diff er. Especially in recent decades, the global economy has changed signifi cantly and one of the major factors fueling its transforma� on is fi nancializa� on. This phenomenon, gaining importance with the beginning of the 21st century, aff ects all areas of the economy. Commodity markets are not free of it either. This leads to various structural changes in terms of ways of trading, price forma� on and vola� lity in commodity markets. The aim of this ar� cle is to inves� gate the roots of fi nancializa� on of commodity markets, and to assess its infl uence on their stabilitythrough inves� ga� on of � me series data from 1991 to 2015 and examining correla� on coeffi cients. The results of the study conducted for the purposes of this ar� cle depict not only the vola� lity of commodity markets, but also a posi� ve correla� on between prices of major commodi� es over the examined period and a posi� ve correla� on between prices of major commodi� es and equity markets from 2009 up to 2012, thus the period of recovery a� er the subprime mortgage crisis. FINANCIALIZATION AND COMMODITY MARKET STABILITY IThe commodity markets play a signifi cant role for the world economy, thus the recently experienced structural changes are important for the actors involved on those markets. With the ongoing fi nancializa� on, the ways of trading commodi� es and inves� ng in them a� racts new investors, mostly origina� ng from fi nancial markets. This fuels the transforma� on of the commodity markets even further. Combined with the changes and turbulences in the world economy it may aff ect the stability of commodity markets. The aim of this ar� cle is to examine how fi nancializa� on has impacted commodity markets and their stability. The author fi rst reviewed the literature in order to inves� gate the root causes of fi nancializa� on of commodity markets and to understand changes experienced by commodity markets. This has been followed by an assessment of vola� lity of commodity prices, which lead to a study of co-movement of commodity prices examined through correla� on co-effi ciencies between major commodi� es as well as between commodi� es and equity markets.