FINANCIALIZATION AND COMMODITY MARKET STABILITY

Abstract

Stability in supply of commodities is essential for manufacturing and doing business. This fact is unchangeable despite the passage of time and only the ways of trading of commodities differ. Especially in recent decades, the global economy has changed significantly and one of the major factors fueling its transformation is financialization. This phenomenon, gaining importance with the beginning of the 21st century, affects 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 formation and volatility in commodity markets. The aim of this article is to investigate the roots of financialization of commodity markets, and to assess its influence on their stability through investigation of time series data from 1991 to 2015 and examining correlation coefficients. The results of the study conducted for the purposes of this article depict not only the volality of commodity markets, but also a positive correlation between prices of major commodities over the examined period and a positive correlation between prices of major commodities and equity markets from 2009 up to 2012, thus the period of recovery after the subprime mortgage crisis.