An Update on Speculation and Financialization in Commodity Markets

This paper reviews the more recent literature addressing different facets of speculation in commodity markets, including the role of speculators and the impact that financialization in recent years. While speculation and financialization can theoretically destabilize commodity markets, the extant literature finds little evidence of destabilization and documents that speculators largely provide liquidity to hedgers. Moreover, recent concern that commodity index trading leads to price distortions has little support in the data.