Speculators, Prices, and Market Volatility
- 1 October 2016
- journal article
- research article
- Published by Cambridge University Press (CUP) in Journal of Financial and Quantitative Analysis
- Vol. 51 (5), 1545-1574
- https://doi.org/10.1017/s0022109016000569
Abstract
We use data from 2005–2009 that uniquely identify categories of traders to test how speculators such as hedge funds and swap dealers relate to volatility and price changes. In examining various subperiods where price trends are strong, we find little evidence that speculators destabilize financial markets. To the contrary, hedge fund position changes are negatively related to volatility in corn, crude oil, and natural gas futures markets. Additionally, swap dealer activity is largely unrelated to contemporaneous volatility. Our evidence is consistent with the hypothesis that hedge funds provide valuable liquidity and largely serve to stabilize futures markets.Keywords
This publication has 44 references indexed in Scilit:
- Limits to arbitrage and hedging: Evidence from commodity marketsJournal of Financial Economics, 2013
- The Fundamentals of Commodity Futures ReturnsEuropean Finance Review, 2012
- Do Energy Prices Respond to U.S. Macroeconomic News? A Test of the Hypothesis of Predetermined Energy PricesThe Review of Economics and Statistics, 2011
- Limits to Arbitrage and Commodity Index Investment: Front-Running the Goldman RollSSRN Electronic Journal, 2010
- Whatwerethey thinking? Reports from interviews with senior finance executives in the lead-up to the GFCApplied Financial Economics, 2010
- The Economic Effects of Energy Price ShocksJournal of Economic Literature, 2008
- Hedge Funds and the Technology BubbleThe Journal of Finance, 2004
- From Efficient Markets Theory to Behavioral FinanceJournal of Economic Perspectives, 2003
- The distribution of realized stock return volatilityJournal of Financial Economics, 2001
- Herd Behaviour, Bubbles and CrashesThe Economic Journal, 1995