Are Agriculture Markets Driven by Investors’ Allocation? Evidence from the Co-Movement of Commodity Prices

Abstract

We identify a common factor in agriculture commodities applying a nonstationary panel method and a structural VAR model. The factor is driven by investors’ portfolio allocation and shown to be time-dependent. Between 2008 and 2011, 10% of the variation in the co-movement of agriculture commodities can be explained with changes in financial institutions’ open interest. The impact of financial speculation coincides with the relative share of financial institutions’ open interest, not with the absolute level of financial investors’ positions.