New Evidence That Index Traders Did Not Drive Bubbles in Grain Futures Markets

This paper analyzes the price impact of financial index investments in grain futures markets during bubble and non-bubble periods over January 2004ÐJune 2015. A recursive bubble-testing procedure is used to detect and date-stamp bubble periods in corn, soybean, and wheat markets. Granger causality tests are used to investigate the lead-lag dynamics between index-trader positions and weekly returns (price changes). Overall, the findings provide little support for the dual claims that (i) grain futures prices recently experienced large and long-lasting bubbles and (ii) index investment was a primary driver of those bubbles.