Financialization of Commodity Markets

Annual Review of Financial Economics

Vol. 6:419-441 (Volume publication date December 2014)
First published online as a Review in Advance on October 09, 2014


The large inflow of investment capital to commodity futures markets in the past decade has generated a heated debate about whether financialization distorts commodity prices. Rather than focusing on the opposing views concerning whether investment flows caused a price bubble, we critically review academic studies through the perspective of how financial investors affect risk sharing and information discovery in commodity markets. We argue that financialization has substantially changed commodity markets through these mechanisms.