Does Futures Speculation Destabilize Spot Prices? New Evidence for Commodity Markets
- 1 February 2013
- journal article
- research article
- Published by Cambridge University Press (CUP) in Journal of Agricultural and Applied Economics
- Vol. 45 (4), 595-616
- https://doi.org/10.1017/s1074070800005150
Abstract
Motivated by repeated price spikes and crashes over the last decade, we investigate whether the growing market shares of futures speculators destabilize commodity spot prices. We approximate conditional volatility and analyze how it is affected by speculative open interest. In this context, we split our sample into two equally long subperiods and document whether the speculative impact on conditional volatility increases. With respect to six heavily traded agricultural and energy commodities, we do not find robust evidence that this is the case. We thus conclude that the financialization of raw material markets does not make them more volatile.Keywords
This publication has 37 references indexed in Scilit:
- Speculators, Prices and Market VolatilitySSRN Electronic Journal, 2011
- Food price volatilityPhilosophical Transactions B, 2010
- The Economic Effects of Energy Price ShocksJournal of Economic Literature, 2008
- The Effect of Futures Market Volume on Spot Market VolatilityJournal of Business Finance & Accounting, 2001
- The Impact of Trader Type on the Futures Volatility‐Volume RelationThe Journal of Finance, 1999
- Interday variations in volume, variance and participation of large speculatorsJournal of Banking & Finance, 1997
- Does futures speculation stabilize spot prices? Evidence from metals marketsApplied Financial Economics, 1997
- Volatility in Wheat Spot and Futures Markets, 1950-1993: Government Farm Programs, Seasonality, and CausalityThe Journal of Finance, 1996
- Quasi-maximum likelihood estimation and inference in dynamic models with time-varying covariancesEconometric Reviews, 1992
- Informational Externalities and Welfare-Reducing SpeculationJournal of Political Economy, 1987