This paper investigates the effect of the “financialization” of commodity markets in terms of pricing. I explore whether the emergence of commodity index traders affects weekly returns and turn-over during the roll periods. I split the sample (1994–2017) into the pre-financialization (1994–2003) and the post-financialization (2004–2017). I directly test whether the CIT market share (CIT/Open Interest) contributes to commodity returns and whether risk adjustments (based on momentum, basis, basis-momentum, open interest, crowding, and average factors) alter liquidity and insurance premiums documented in Kang, Rouwenhorst, and Tang (2020).
This paper explores empirically whether the supply or the demand uncertainty, the time to maturity, and the slope of the term structure (storage), explain the realized volatility of nearby commodity futures 5-minute returns. I find support for the “uncertainty resolution” and the “theory of storage” hypotheses while the “time to maturity” hypothesis is rejected. These results are robust to the inclusion of autoregressive terms in the baseline model. Next, I evaluate the in- and out-of-sample forecasting ability of models including these economic variables and find mixed results.