Futures Price Volatility in Commodities Markets: The Role of Short Term vs Long Term Speculation

27 Pages Posted: 17 Jul 2013 Last revised: 21 Jul 2013

See all articles by Matteo Manera

Matteo Manera

University of Milan-Bicocca, Italy - Department of Economics, Management and Statistics (DEMS); Fondazione Eni Enrico Mattei (FEEM), Milan, Italy

Marcella Nicolini

University of Pavia - Department of Economics and Management

Ilaria Vignati

Fondazione Eni Enrico Mattei (FEEM)

Multiple version iconThere are 3 versions of this paper

Date Written: May 1, 2013

Abstract

This paper evaluates how different types of speculation affect the volatility of commodities’ futures prices. We adopt four indexes of speculation: Working’s T, the market share of non-commercial traders, the percentage of net long speculators over total open interest in future markets, which proxy for long term speculation, and scalping, which proxies for short term speculation. We consider four energy commodities (light sweet crude oil, heating oil, gasoline and natural gas) and seven non-energy commodities (cocoa, coffee, corn, oats, soybean oil, soybeans and wheat) over the period 1986-2010 analyzed at weekly frequency. Using GARCH models we find that speculation significantly affects volatility of returns: short term speculation has a positive and significant impact on volatility, while long term speculation generally has a negative effect. The robustness exercise shows that: i) scalping is positive and significant also at higher and lower data frequencies; ii) results remain unchanged through different model specifications (GARCH-in-mean, EGARCH, and TARCH); iii) results are robust to different specifications of the mean equation.

Keywords: Commodities futures markets, Speculation, Scalping, Working’s T, Data frequency, GARCH models

JEL Classification: C32, G13, Q11, Q43

Suggested Citation

Manera, Matteo and Nicolini, Marcella and Vignati, Ilaria, Futures Price Volatility in Commodities Markets: The Role of Short Term vs Long Term Speculation (May 1, 2013). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 243. Available at SSRN: https://ssrn.com/abstract=2294414 or http://dx.doi.org/10.2139/ssrn.2294414

Matteo Manera (Contact Author)

University of Milan-Bicocca, Italy - Department of Economics, Management and Statistics (DEMS) ( email )

Via Bicocca degli Arcimboldi, 8
Milan, 20126
Italy
+39 02 6448 5819 (Phone)
+39 02 6448 5878 (Fax)

HOME PAGE: http://www.matteomanera.it

Fondazione Eni Enrico Mattei (FEEM), Milan, Italy ( email )

Corso Magenta, 63
Milan, 20123
Italy
+39 02 520 36944 (Phone)

HOME PAGE: http://www.feem.it

Marcella Nicolini

University of Pavia - Department of Economics and Management ( email )

Strada Nuova, 65
Pavia, 27100
Italy

Ilaria Vignati

Fondazione Eni Enrico Mattei (FEEM) ( email )

C.so Magenta 63
Milano, 20123
Italy

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