Identifying speculative demand shocks in commodity futures markets through changes in volatility

Arbeitspapier

This paper studies the effects of financial speculation on commodity futures returns, using publicly available data from the US Commodity Futures Trading Commission, aggregated by trader groups. We exploit the heteroskedasticity in the weekly data to identify exogenous variation in speculators' positions. The results suggest that idiosyncratic net long demand shocks of both index investors and hedge funds increase futures returns. They further indicate that these shocks are a relevant driver of returns, especially during periods of high speculative demand volatility. These findings confirm significant price effects of financial investments, complementing existing evidence based on disaggregated and proprietary daily data.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: DIW Discussion Papers ; No. 1646

Classification and Topics

• Classification: Wirtschaft ; Commodity Markets ; Contingent Pricing; Futures Pricing; option pricing ; Prices, Business Fluctuations, and Cycles: Other
• Subject: financialization ; hedge funds ; index investors ; market structure ; liquidity ; limits to arbitrage ; heteroskedasticity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hachula, Michael ; Rieth, Malte
• Event: Veröffentlichung
• (who): Deutsches Institut für Wirtschaftsforschung (DIW)
• (where): Berlin
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/156138
• Last update: 10.03.2025, 11:42 AM CET