When |
Sep 08, 2015
from 12:00 AM to 01:00 PM |
---|---|
Where | Room W4.03, Cambridge Judge Business School |
Contact Name | Kat Ndrepepaj |
Contact Phone | 01223768129 |
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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.