Commodity Markets Intervention: Consequences of Speculation, and Informed Trading

Journal of Commodity Markets

22 Pages Posted: 14 Aug 2018 Last revised: 26 Apr 2021

See all articles by Phat V. Luong

Phat V. Luong

SUNY Polytechnic Institute, College of Business Management

Ben J. Sopranzetti

Rutgers Business School: Newark and New Brunswick

Date Written: October 9, 2018

Abstract

The Chinese regulatory authority’s interventions into the futures market for steel during 2016 provide a rare opportunity to study the unintended consequences of interventions. Although hot rolled coil (HRC) and rebar are products with nearly identical components, their futures contracts trade separately. The regulatory authority intervened into the futures market for rebar but refrained from doing so for HRC. We document impacts of interventions measured by increased volatility, trading volume, and spreads in rebar markets. There is also evidence of informed trading in both markets, reflected by abnormally high trading volumes and low open interests occurring the day before the announcement of interventions.

Keywords: Government intervention; speculation; informed trading; market microstructure; steel futures market.

JEL Classification: G12, G14

Suggested Citation

Luong, Phat V. and Sopranzetti, Ben J., Commodity Markets Intervention: Consequences of Speculation, and Informed Trading (October 9, 2018). Journal of Commodity Markets, Available at SSRN: https://ssrn.com/abstract=3222762 or http://dx.doi.org/10.2139/ssrn.3222762

Phat V. Luong (Contact Author)

SUNY Polytechnic Institute, College of Business Management ( email )

100 Seymour Rd
Donovan 1101
Utica, NY 13502
United States

Ben J. Sopranzetti

Rutgers Business School: Newark and New Brunswick ( email )

100 Rockafeller Rd
Piscataway, NJ 08854
United States

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