Price Volatility, Speculation and Excessive Speculation in Commodity Markets: Sheep or Shepherd Behaviour?

ZEF- Discussion Papers on Development Policy No. 166

40 Pages Posted: 4 Jun 2012

See all articles by Bernardina Algieri

Bernardina Algieri

University of Calabria - Department of Economics and Statistics; University of Bonn - Department of Economic and Technological Change

Date Written: May 1, 2012

Abstract

The present study aims to investigate the dynamics of primary commodity prices and the role of speculation over time. In particular the relationship between speculation and price volatility on the one side, and the linkage between excessive speculation and price volatility on the other side, is carefully examined with the scope to establish whether volatility drives speculation or speculation drives price volatility, or whether there are no linkages between the two variables. In order to identify the presence of any lead-lag relationships, two batteries of Granger causality tests are carried out for the period 1995-2012. The investigation complements a preliminary index analysis on speculation and excessive speculation in the commodity market. Unlike several academic researches that reject any causal relationship between the two variables, this study shows that excessive speculation drives price volatility, and that often bilateral relationships exist between price volatility and speculation. In addition, the lead-lag relationships are found not for the entire sample period 1995-2012, but when small sub-periods are taken into account. It turns out, in fact, that excessive speculation has driven price volatility for maize, rice, soybeans, and wheat in particular time frames, but the relationships are not always overlapping for all the considered commodities.

Keywords: Price volatility, excessive speculation, Granger analysis

Suggested Citation

Algieri, Bernardina, Price Volatility, Speculation and Excessive Speculation in Commodity Markets: Sheep or Shepherd Behaviour? (May 1, 2012). ZEF- Discussion Papers on Development Policy No. 166, Available at SSRN: https://ssrn.com/abstract=2075579

Bernardina Algieri (Contact Author)

University of Calabria - Department of Economics and Statistics ( email )

via Ponte Bucci
Rende (Cosenza), Cosenza 87036
Italy

University of Bonn - Department of Economic and Technological Change ( email )

Walter-Flex-Str. 3
Bonn, 53113
Germany

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