Academic Key-Note Address 4th Annual FIA Asia Derivatives Conference Westin Tokyo

I would like to thank Nick Ronalds for helpful comments and discussions on an earlier draft. I alone am responsible for the contents of this paper, as well as any remaining errors. In this academic address, I will be mainly addressing the complex question of what drives commodity prices. With the recent run-ups in grain and energy prices together with seemingly higher price volatility, there is currently an acute increase in interest by U.S. as well as foreign regulators with respect to the more exact causes of the price moves and swings. I first attempt to take stock of what the academic literature makes of arbitrage links between listed derivative markets and the associated cash markets, as well as the perceived tendency of futures price moves to induce price moves in the cash markets – the so called “Tail wags the dog syndrome”. Then I will argue that there has been a broad paradigm shift in the market with respect to the classic form of arbitrage. Overall I conclude that markets are now more globally integrated than ever, and that a more robust and stable pricing structure is in place for traded assets despite local “price hiccups ” in the short term.