Does Futures Speculation Destabilize Spot Prices? New Evidence for Commodity Markets

53 Pages Posted: 5 Jan 2012 Last revised: 11 Dec 2012

See all articles by Martin T. Bohl

Martin T. Bohl

University of Muenster

Patrick M. Stephan

University of Münster

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

Bohl, Martin T. and Stephan, Patrick M., Does Futures Speculation Destabilize Spot Prices? New Evidence for Commodity Markets (January 4, 2012). Available at SSRN: https://ssrn.com/abstract=1979602 or http://dx.doi.org/10.2139/ssrn.1979602

Martin T. Bohl

University of Muenster ( email )

Schlossplatz 2
D-48149 Muenster, D-48149
Germany

Patrick M. Stephan (Contact Author)

University of Münster ( email )

Universitätsstr. 14-16
48143 Muenster, NRW 48143
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de

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