Have Exchange Traded Funds Influenced Commodity Market Volatility?
Exchange Traded Funds (ETFs) have existed since the late 1980s, but were first traded on commodity markets in the early 2000s. Their inception has been linked by some market analysts with the large commodity price increases and volatility evident between 2007 and 2009. This research analyses forty-...
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| Format: | Article |
| Language: | English |
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EconJournals
2014-03-01
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| Series: | International Journal of Economics and Financial Issues |
| Online Access: | http://mail.econjournals.com/index.php/ijefi/article/view/723 |
| _version_ | 1828029810704646144 |
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| author | Shaen Corbet Cian Twomey |
| author_facet | Shaen Corbet Cian Twomey |
| author_sort | Shaen Corbet |
| collection | DOAJ |
| description |
Exchange Traded Funds (ETFs) have existed since the late 1980s, but were first traded on commodity markets in the early 2000s. Their inception has been linked by some market analysts with the large commodity price increases and volatility evident between 2007 and 2009. This research analyses forty-four ETFs across seventeen commodity markets and focuses on the role that the product has played, either as an accelerant for mispricing in international commodity markets, or as a mechanism for liquidity improvements, thereby increasing the speed of the transfer of information. An EGARCH model is used to investigate whether the volatility and liquidity effects are more pronounced in larger or smaller sized commodity markets. The results indicate that larger market-proportional ETF holdings are associated with higher EGARCH volatility. Smaller commodity markets are found to have increased liquidity flows, indicating benefits from ETF investment. The findings in this paper support calls for more intense regulation of the ETF industry and more investigation into the investment practices and rebalancing processes of the funds in question. The need for regulation of investment size and the imposition of market ownership caps cannot be rejected.
Keywords: Exchange Traded Funds (ETFs); commodity markets; volatility.
JEL Classifications: G12; G15.
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| first_indexed | 2024-04-10T14:16:11Z |
| format | Article |
| id | doaj.art-2f59aecbaf13404d9ff6efd253918eca |
| institution | Directory Open Access Journal |
| issn | 2146-4138 |
| language | English |
| last_indexed | 2024-04-10T14:16:11Z |
| publishDate | 2014-03-01 |
| publisher | EconJournals |
| record_format | Article |
| series | International Journal of Economics and Financial Issues |
| spelling | doaj.art-2f59aecbaf13404d9ff6efd253918eca2023-02-15T16:09:30ZengEconJournalsInternational Journal of Economics and Financial Issues2146-41382014-03-0142Have Exchange Traded Funds Influenced Commodity Market Volatility?Shaen Corbet0Cian Twomey1Dublin City University Business School (DCUBS)J.E. Cairnes School of Business and Economics, National University of Ireland, Galway (NUIG), Ireland. Exchange Traded Funds (ETFs) have existed since the late 1980s, but were first traded on commodity markets in the early 2000s. Their inception has been linked by some market analysts with the large commodity price increases and volatility evident between 2007 and 2009. This research analyses forty-four ETFs across seventeen commodity markets and focuses on the role that the product has played, either as an accelerant for mispricing in international commodity markets, or as a mechanism for liquidity improvements, thereby increasing the speed of the transfer of information. An EGARCH model is used to investigate whether the volatility and liquidity effects are more pronounced in larger or smaller sized commodity markets. The results indicate that larger market-proportional ETF holdings are associated with higher EGARCH volatility. Smaller commodity markets are found to have increased liquidity flows, indicating benefits from ETF investment. The findings in this paper support calls for more intense regulation of the ETF industry and more investigation into the investment practices and rebalancing processes of the funds in question. The need for regulation of investment size and the imposition of market ownership caps cannot be rejected. Keywords: Exchange Traded Funds (ETFs); commodity markets; volatility. JEL Classifications: G12; G15. http://mail.econjournals.com/index.php/ijefi/article/view/723 |
| spellingShingle | Shaen Corbet Cian Twomey Have Exchange Traded Funds Influenced Commodity Market Volatility? International Journal of Economics and Financial Issues |
| title | Have Exchange Traded Funds Influenced Commodity Market Volatility? |
| title_full | Have Exchange Traded Funds Influenced Commodity Market Volatility? |
| title_fullStr | Have Exchange Traded Funds Influenced Commodity Market Volatility? |
| title_full_unstemmed | Have Exchange Traded Funds Influenced Commodity Market Volatility? |
| title_short | Have Exchange Traded Funds Influenced Commodity Market Volatility? |
| title_sort | have exchange traded funds influenced commodity market volatility |
| url | http://mail.econjournals.com/index.php/ijefi/article/view/723 |
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