The order flow cost of index rolling in commodity futures markets

Scott H. Irwin, Dwight R. Sanders, Lei Yan

Research output: Contribution to journalArticlepeer-review

Abstract

Commodity index rolling is treated as a natural experiment and an event study of order flow costs in a wide array of futures markets is conducted. The spread between nearby and deferred futures prices decreases significantly in the early and growth phases of financialization (1991–2011), with the spreads reversing back after rolling is completed. Spread impacts disappear in the post-financialization period (2012–2019). We argue that a dramatic increase in the supply of liquidity brought on by the transition to electronic trading in commodity futures markets is primarily responsible for the decline of roll order flow costs.

Original languageEnglish (US)
JournalApplied Economic Perspectives and Policy
DOIs
StateAccepted/In press - 2022

Keywords

  • commodity
  • electronic trading
  • financialization
  • futures
  • index
  • order flow
  • roll
  • spread

ASJC Scopus subject areas

  • Development
  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'The order flow cost of index rolling in commodity futures markets'. Together they form a unique fingerprint.

Cite this