Why Do Hedgers Trade So Much?

22 Pages Posted: 13 Nov 2013 Last revised: 25 Jan 2014

See all articles by Ing-Haw Cheng

Ing-Haw Cheng

Dartmouth College - Tuck School of Business

Wei Xiong

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: January 7, 2014

Abstract

Futures positions of commercial hedgers in wheat, corn, soybeans and cotton fluctuate much more than expected output. Hedgers’ short positions are positively correlated with price changes. Together, these observations raise doubt about the common practice of categorically classifying trading by hedgers as hedging while trading by speculators as speculation, as hedgers frequently change their futures positions over time for reasons unrelated to output fluctuations, arguably a form of speculation.

Keywords: commodity speculation, hedging, financialization

Suggested Citation

Cheng, Ing-Haw and Xiong, Wei, Why Do Hedgers Trade So Much? (January 7, 2014). Available at SSRN: https://ssrn.com/abstract=2353218 or http://dx.doi.org/10.2139/ssrn.2353218

Ing-Haw Cheng (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Wei Xiong

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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