Economics and politics - comment and analysis
5. February 2013 I Heiner Flassbeck I Financial Markets

When commodities are “just“ another asset by David Bicchetti and Nicolas Maystre

Commodities have become over the past ten years part of the portfolio allocation of most asset managers. As such, financial investors detain “paper” commodities, and sometimes physical commodities as well, as any other type of assets. They do not invest in commodities because they are needed for their core business but just to improve the properties of their investment portfoli…

Commodities have become over the past ten years part of the portfolio allocation of most asset managers. As such, financial investors detain “paper” commodities, and sometimes physical commodities as well, as any other type of assets. They do not invest in commodities because they are needed for their core business but just to improve the properties of their investment portfolio in terms of risks and returns. Investment banks, hedge funds and commodity specialized asset managers have been offering a wide array of commodity investment products and have actively recommended them to their clients.

Recent research studies have shown the “collateral” effect of such investment allocation. Although at times volatility might be attributed to external shocks like trade bans or adverse weather conditions, financial investors have also contributed in recent years to exacerbate volatility on commodity markets, where prices changes are abrupt and often unpredictable. UNCTAD (2011) has shown that commodity prices tend to move in the same direction that speculative currencies and stock markets over period ranging from days to months.

More recently, Bicchetti and Maystre (2012) show that liquid commodity markets have moved in tandem with the US stock market in a synchronized and persistent fashion since the collapse of Lehma…

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