The Financialization of Food?

Commodity‐equity return co‐movements rose dramatically during the Great Recession. This development took place following what has been dubbed the “financialization” of commodity markets. We first document changes since 1995 in the relative importance of financial institutions’ activity in agricultural futures markets. We then use a structural vector autoregression (VAR) model to ascertain the role of that activity in explaining correlations between weekly grain, livestock, and equity returns from 1995–2015. We provide robust evidence that, accounting for shocks that are idiosyncratic to agricultural markets, world business cycle shocks have a substantial and long‐lasting impact on the latter's co‐movements with financial markets. In contrast, changes in the intensity of financial speculation have an impact on cross‐market return linkages that is shorter‐lived and not statistically significant in all model specifications.