Using a public dataset of trader positions in 17 U.S. commodity futures markets, we compute an index of "excess" speculation (speculative activity beyond meeting net hedging demand) to provide evidence of those markets' financialization during the past decade. Controlling for commodity supply and demand fundamentals, we show that this index helps predict the dynamic conditional correlation between the rates of return on commodities and on equities. The predictive power of the speculative index is weaker in periods of generalized financial market stress. Our results support the notion that who trades helps predict the joint distribution of commodity and equity returns.JEL Classification: G10, G12, G13, G23

Fund (IMF), the European Central Bank (ECB), the CFTC and the U.S. Securities and Exchange Commission (SEC) for helpful comments. An companion paper was presented at the Annual Meeting of the Financial Management Association in New York, the 2 nd CEPR Conference on Hedge Funds (HEC-Paris) and the 20 th Cornell-FDIC Conference on Derivatives. This paper builds on results derived as part of research projects for the CFTC and the SEC (Robe) and the CFTC and the IEA (Büyükşahin). The CFTC, SEC and IEA, as a matter of policies, disclaim responsibility for any private publication or statement by any of their employees or consultants. The views expressed herein are those of the authors only and do not necessarily reflect the views of the CFTC, the SEC, the Commissioners, or other staff at either Commission; or the IEA, member governments, or other IEA staff. Errors and omissions, if any, are the authors' sole responsibility.

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Non-Technical SummaryAs the recent financial crisis demonstrates, failures within the financial system can have devastating effects on the real economy. The crisis has elevated concerns about the trading behavior of financial market participants, particularly those operating outside the public eye. The burgeoning hedge fund industry, for instance, operates largely outside the jurisdiction of the U.S. Securities and Exchange Commission, with few public reporting requirements. Likewise, swap dealers operate in relatively opaque over-the-counter markets, fueling anxiety about their influence as well.In this paper, we analyze the trading of both hedge funds and swap dealers in futures markets from 2005 through 2009 to assess how these traders affect market volatility and prices. We use daily long and short positions of these traders with data from the U.S. Commodity Futures Trading Commission to analyze trading in crude oil, natural gas and corn markets-each of which experienced significant price volatility during the recent crisis. While this volatility was accompanied by increased hedge fund and swap dealer participation, we specifically test for lead-lag and contemporaneous relations between trader positions and both market volatility and prices during various subperiods when prices and volatility were inflated.We find that contemporaneous hedge fund positions were positively correlated with prices but negatively correlated with volatility. These results suggest that hedge funds provide liquidity to the market and facilitate price efficiency. Swap dealer positions, however, are largely unrelated to market returns and volatility. In contrast to the stabilizing influence of hedge funds, merchant positions (in crude oil and natural gas) are significantly positively related to market volatility. These results are consistent with Hirshleifer (1989Hirshleifer ( , 1990, where speculators are drawn to futures markets and the risk premiums are generated by hedging demand from other traders.We also examine whether the "financialization" of futures markets (as represented by the changing mix of participant positions) has affected the functioning of the futures markets. In every instance, we find that speculative position changes do not amplify volatility during the crisis and so do not impede the functioning of futures markets. Conversely, in each market we find that macroeconomic conditions are significantly related to future...

We document that, starting in the Fall of2008, the benchmark West Texas Intermediate (WTI) crude oil has periodically traded at unheard-of discounts to the corresponding Brent benchmark. We further document that this discount is not reflected in spreads between Brent and other benchmarks that are directly comparable to WTI. Drawing on extant models linking oil inventory conditions to the futures term structure, we test empirically several conjectures about how calendar and commodity spreads (nearby vs. first-deferred WTI; nearby Brent vs. WTI) should move over time and be related to storage conditions at Cushing. We then investigate whether, after controlling for macroeconomic and physical market fundamentals, spread behavior is partly predicted by the aggregate oil futures positions of commodity index traders.