Cambridge Finance Workshop Series are usually held on Thursdays during term time. The workshops are an opportunity for those working in finance to present their latest results or papers.
Ke Tang
Professor of Finance, School of Social Science, Tsinghua University, Beijing.
This paper proposes and tests a theory of using commodities as collateral for financing. Under capital control and collateral constraint, financial investors import commodities and pledge them as collateral to earn a risk premium. The collateral demand for com- modities increases commodity prices globally; it also increases commodity futures risk premium in the importing country but reduces that in the exporting country. Evidence from eight commodities in China and developed markets supports the theoretical pre-dictions, and the effects are economically large. Our theory and evidence complement
the theory of storage and provide new insights on the financialization of commodity markets.