Commodities as Collateral
Name
Commodities as Collateral.pdf
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655.62 KB
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Adobe PDF
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Author(s)
Tang, Ke
Zhu, Haoxiang
Date Issued
May 2016
Journal
Review of Financial Studies
Publisher
Oxford University Press
Citation
Tang, Ke and Zhu, Haoxiang. “Commodities as Collateral.” Review of Financial Studies 29, no. 8 (May 2016): 2110–2160 © 2016 The Author(s)
Version
Author's final manuscript
Abstract
We propose and test a theory of using commodities as collateral for financing. Under capital control and collateral constraint, investors import commodities and pledge them as collateral to earn higher expected returns. Higher collateral demands increase commodity prices and make the inventory–convenience yield relation less negative. Our model illustrates these equilibrium effects and suggests that the violation of covered interest-rate parity is a proxy for collateral demands. Evidence from eight commodities in China and developed markets supports the theoretical predictions. Our findings complement the theory of storage and provide new insights into the financialization of commodity markets.
MIT Department
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1093/rfs/hhw029
