The Role of Speculators in the Crude Oil Futures Market
Jeffrey H. Harris
Bank of Canada
July 16, 2009
Abstract: The coincident rise in crude oil prices and increased numbers of financial participants in the crude oil futures market from 2000-2008 has led to allegations that "speculators" drive crude oil prices. As crude oil futures peaked at $147/bbl in July 2008, the role of speculators came under heated debate. In this paper, we employ unique data from the U.S. Commodity Futures Trading Commission (CFTC) to test the relation between crude oil prices and the trading positions of various types of traders in the crude oil futures market. We employ Granger Causality tests to analyze lead and lag relations between price and position data at daily and multiple day intervals. We find little evidence that hedge funds and other non-commercial (speculator) position changes Granger-cause price changes;–the results instead suggest that price changes do precede their position changes.
Number of Pages in PDF File: 40
Keywords: Crude Oil, Futures Markets, Speculators, Granger Causality, Hedge Funds, Commodity Index Traders
JEL Classification: G12, G14, G23
Date posted: July 16, 2009
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