University of Cambridge > > Cambridge Finance Workshop Series > Ad-hoc Seminar: Commodities as Collateral

Ad-hoc Seminar: Commodities as Collateral

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  • UserKe Tang, Professor of Finance, School of Social Science, Tsinghua University, Beijing
  • ClockTuesday 08 September 2015, 12:00-13:00
  • HouseRoom W4.03 Judge Business School.

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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.

This talk is part of the Cambridge Finance Workshop Series series.

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