Booms and Busts in Commodity Markets: Bubbles or Fundamentals?
Journal of Futures Markets, Vol. 35, No. 10, 2015
38 Pages Posted: 2 Feb 2014 Last revised: 22 Mar 2019
Date Written: February 4, 2015
This paper considers whether there were periodically collapsing rational speculative bubbles in commodity prices over a forty year period from the late 1960s. We apply a switching regression approach to a broad range of commodities using two different measures of fundamental values – estimated from convenience yields and from a set of macroeconomic factors believed to affect commodity demand. We find reliable evidence for bubbles only among crude oil and feeder cattle, showing the popular belief that the extreme price movements observed in commodity markets were caused by pure speculation to be unsustainable.
Keywords: Commodity futures, Speculative bubble, Switching regression, Convenience yield, Macroeconomic factors
JEL Classification: C12, G13, G14, G23, Q14, Q48
Suggested Citation: Suggested Citation