Hedging Pressure and Speculation in Commodity Markets

Ekeland, Ivar; Lautier, Delphine; Villeneuve, Bertrand

doi:10.2139/ssrn.2323560

Hedging Pressure and Speculation in Commodity Markets

Economic Theory, Forthcoming

41 Pages Posted: 10 Sep 2013 Last revised: 30 Apr 2018

See all articles by Ivar Ekeland

Ivar Ekeland

University of British Columbia (UBC) - Faculty of Education; Université Paris Dauphine - CEREMADE

Bertrand Villeneuve

Université Paris-Dauphine, PSL Research University

Date Written: January 26, 2018

Abstract

We propose a micro-founded equilibrium model to examine the interactions between the physical and the derivative markets of a commodity. This model provides a unifying framework for the hedging pressure and storage theories. The model shows a variety of behaviors at equilibrium that can be used to analyze price relations for any commodity. Further, through a comparative statics analysis, we precisely identify the losers and winners in the financialization of the commodity markets. Therefore, this paper clarifies the political economy of regulatory issues, like speculators' influence on prices.

Keywords: Equilibrium model; commodity; speculation; regulation; futures markets

JEL Classification: D4, G13, Q02

Suggested Citation: Suggested Citation

Ekeland, Ivar and Lautier, Delphine and Villeneuve, Bertrand, Hedging Pressure and Speculation in Commodity Markets (January 26, 2018). Economic Theory, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2323560 or http://dx.doi.org/10.2139/ssrn.2323560