The Increase in Commodity Prices During the Period of 2006-2008, Is it a Bubble?

The prices of commodities have constantly been increasing over time but during the period of 2006-2008 there is a rapid increase being seen in these particular years. Therefore, this sharp increase can either be explained by real increases in demand and supply or by artificial increase due to the bubble effect. One might claim that this is due to economic growth and boom during these years. But other opponents who seem to be more right and precise about this issue have recently accused speculators in general and commodity index funds speculators in particular. Because this speculation includes increasing market volatility, distorting historical price relationships and, enhancing a sharp increase in commodity prices and decrease in commodity inflation, some researchers have argued that these mentioned market participants might unintentionally prevent the efficient distribution of food aid to deserving groups through their impact on market prices. Although a classical argument might be followed that speculators make prices more efficient and therefore, improve the economic efficiency of the agricultural and food marketing system, it is crucial to develop a more thorough understanding of index funds speculators and their potential market impact. Therefore, not only index speculators or so but institutional investors as well have contributed to this bubble creation of sharp increase in commodities prices during 2006-2008. Their field of acting is commodities futures market by which they engage in the financial instruments and can create significant bubbles in the economy, particularly in the commodities markets. A criticism against these institutional investors is shown throughout this paper supported with arguments and empirical evidence