Published in:Review of Financial Studies, Forthcoming
Extent:
1 Online-Ressource (85 p)
Language:
English
DOI:
10.2139/ssrn.2663398
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments July 5, 2018 erstellt
Description:
We study the impact of index investing on firm performance by examining the link between commodity indices and firms that use index commodities. Around 2004, there was a dramatic increase in commodity index investing, an event referred to as the financialization of commodity markets. Following financialization, firms that use index commodities make worse production decisions, earn 40% lower profits, and have 6% higher costs. Consistent with a feedback channel in which market participants learn from prices, our results suggest that index investing distorts the price signal thereby generating a negative externality that impedes firms' ability to make production decisions