Who Wins and Who Loses? Trader Returns and Risk Premiums in Agricultural Futures Markets

Nicole M. Moran, Scott H. Irwin, Philip Garcia

Research output: Contribution to journalArticlepeer-review

Abstract

The rise of commodity index traders (CITs) in the early 2000s provides a natural experiment to identify whether passive holding of long agricultural futures positions earns a positive risk premium. We use nearly a decade of daily nonpublic position data for all large traders to compute trading profits in twelve agricultural futures markets. Despite increasing price trends in a majority of markets, CITs were the biggest losers during the sample period, experiencing losses in nine out of twelve markets and an aggregate loss of $6.9 billion. This is just the opposite of the prediction of the theory of normal backwardation.

Original languageEnglish (US)
Pages (from-to)611-652
Number of pages42
JournalApplied Economic Perspectives and Policy
Volume42
Issue number4
DOIs
StatePublished - Dec 1 2020

Keywords

  • Agricultural
  • Commodity index traders
  • Futures markets
  • Risk premium

ASJC Scopus subject areas

  • Development
  • Economics and Econometrics

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