Commodity Returns and Their Volatility in Relation to Speculation: A Consistent Empirical Approach

Posted: 28 Sep 2015

See all articles by Marco Haase

Marco Haase

University of Basel - Center for Economic Science (WWZ) - Department of Finance

Yvonne Seiler Zimmermann

Lucerne University of Applied Sciences and Arts, School of Business, Institute of Financial Services Zug, IFZ

Heinz Zimmermann

University of Basel - Center for Economic Science (WWZ)

Date Written: September 2015

Abstract

Granger causality (GC) tests are widely used when it comes to empirically address the dynamic relationship between speculative activities and pricing on commodity markets. However, the sheer number of studies and their heterogeneity makes it extremely difficult – if not impossible – to compare their results and to derive meaningful conclusions. This is the main objective of this paper, which analyzes a consistent dataset with a homogeneous estimation approach. We analyze futures returns and volatilities of 28 commodities for three maturities, from January 2006 to March 2015, in relation to three speculation proxies. Overall, we find a larger number of significant GC effects for volatilities than for returns. The volatility effect is mostly negative, i.e. more speculation is followed by lower volatilities. This is particularly true if the Working index used as speculation proxy. The majority of destabilizing effects (positive relations) if any, is found in livestock. However, no such effects seem to be present in typical agricultural commodities. Mixed evidence is found for softs. Apart from statistical significance, the explained variance of returns and volatilities is below 8% and therefore economically small or at best moderate.

Keywords: Speculation, commodity futures prices, lead-lag relationships

JEL Classification: C32, G13, Q11, Q41

Suggested Citation

Haase, Marco and Seiler Zimmermann, Yvonne and Zimmermann, Heinz, Commodity Returns and Their Volatility in Relation to Speculation: A Consistent Empirical Approach (September 2015). https://doi.org/10.3905/jai.2017.20.2.076, Available at SSRN: https://ssrn.com/abstract=2666219 or http://dx.doi.org/10.2139/ssrn.2666219

Marco Haase

University of Basel - Center for Economic Science (WWZ) - Department of Finance ( email )

Peter Merian Weg 6
Basel, CH-4002
Switzerland

Yvonne Seiler Zimmermann (Contact Author)

Lucerne University of Applied Sciences and Arts, School of Business, Institute of Financial Services Zug, IFZ ( email )

Campus Zug Rotkreuz
Suurstoffi 1
Rotkreuz, CH-6343
Switzerland

Heinz Zimmermann

University of Basel - Center for Economic Science (WWZ) ( email )

Peter Merian Weg 6
Basel, 4002
Switzerland
+41 61 267 33 16 (Phone)
+41 61 267 08 98 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
5,520
PlumX Metrics