Does Futures Speculation Destabilize Spot Prices? New Evidence for Commodity Markets
53 Pages Posted: 5 Jan 2012 Last revised: 11 Dec 2012
Date Written: January 4, 2012
Abstract
Motivated by repeated price spikes and crashes over the last decade, we investigate whether the rapidly growing market shares of futures speculators have destabilized commodity spot prices. We approximate conditional volatility and regress it on expected and unexpected speculative open interest. In this context, we split our sample into two equally long sub-periods, and document whether the speculative impact on conditional volatility has increased. However, with respect to six heavily traded agricultural and energy commodities, we find no evidence that this is the case. We thus conclude that the increasing financialization of raw material markets has not made them more volatile.
Keywords: Futures Speculation, Spot Price Volatility, Agricultural and Energy Commodities
JEL Classification: G10, G18, Q14, Q18, Q40
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Commodity Price Volatility and World Market Integration Since 1700
By David S. Jacks, Kevin H. O'rourke, ...
-
Commodity Price Volatility and World Market Integration Since 1700
By David S. Jacks, Kevin H. O'rourke, ...
-
Outgrowing Resource Dependence: Theory and Some Recent Developments
-
Lost Decades: Lessons from Post-Independence Latin America for Today's Africa
By Robert Bates, John H. Coatsworth, ...
-
Lost Decades: Lessons from Post-Independence Latin America for Today's Africa
By Robert Bates, John H. Coatsworth, ...
-
Human Capital and Growth: The Recovered Role of Education Systems
-
The Welfare Impacts of Commodity Price Volatility: Evidence from Rural Ethiopia
By Marc F. Bellemare, Christopher B. Barrett, ...
-
Food Prices and Political Instability
By Rabah Arezki and Markus Bruckner
-
Food Prices and Political Instability
By Rabah Arezki and Markus Bruckner