Monetary Economics, and the Institute of Econometrics and Economic Statistics of the Westphalian

Motivated by repeated price spikes and crashes over the last decade, we in-vestigate whether the intensive investment activities of commodity index traders (CITs) has destabilized agricultural futures markets. Using a stochastic volatility model, we treat conditional volatility as an unobserved component, and analyze whether it has been affected by the expected and unexpected open interest of CITs. However, with respect to twelve increasingly financialized grain, livestock, and soft commodities, we do not find robust evidence that this is the case. We thus conclude that justifying a tighter regulation of CITs by blaming them for more volatile agricultural futures markets appears to be unwarranted