Analysis on inflows of index investors and determinants of futures price

In this paper, based on a description of the four major players of commodity spot and futures markets, we establish a multi-phase equilibrium model of price determination, and then analyze the influence of the entry of a large number of index investors on the risk premium, inventory management, and different traders' positions of commodity futures. The result shows that, the correlation between the stock market and commodity futures markets, the index investors' entering and demanding for commodity spot both are important factors to decide the price of the commodity futures market and the trader behavior. The empirical results also support this view.