A new approach to measure speculation in the oil futures market and some policy implications

The effect of gold market speculation on REIT returns in South Africa: a behavioral perspective

“…As mentioned earlier, one of the contributions of this study is to relate, via the MS-TVP specification, the time-variation in herding to speculative activities in the gold market. For this purpose, we obtain daily data on gold futures from Commodity Systems Inc. and calculate the speculative ratio defined as the trading volume divided by open interest, following Chan et al (2015). Figure 1 plots the daily speculative ratio normalized to one at the beginning of the sample period for illustrative purposes.…”

“…Interestingly, this period is also associated with a notable outbreak in the estimated asymmetry measures (Panel D of Figure 2), consistent with the prevalence of herd behavior particularly during periods of large market losses, rather than bull market periods. Chan et al (2015) argue that the speculative ratio reflects the balance of hedging and speculative tendencies in the underlying commodity, implied by the level of trading volume relative to the open interest. It is therefore possible that increased speculative activity in the gold market, implied by higher speculative ratios particularly for the duration and aftermath of the global financial crisis period as shown in Figure 1, reflects increased uncertainty regarding global market conditions which also significantly contributes to herd behavior in the emerging South African REITs market that has been significantly affected by global market turbulence.…”

“…It can be argued that gold market dynamics, particularly during market crisis periods, are closely related to global expectations of economic fundamentals. To that end, the speculative ratio, a measure of speculative activity recently suggested by Chan et al (2015), provides an interesting opening in that it allows us to examine whether the time variation in the level of speculation in this safe haven asset relates to investor herding in a major emerging stock market that has experienced some of the worst side effects of turbulence in global financial markets. A second motivation to relate gold speculation to herding in the South African REITs is due to the importance of the gold mining industry in this country that has been the driving force behind its economic growth and participation in the global economy (Mining Production and Sale Report, Statistics South Africa, 2015).…”

Risky short positions and investor sentiment: Evidence from the weekend effect in futures markets

“…Although CFTC data are the only viable possibility to approximate speculative activity in these markets using publicly available data, it is important to note that this matching might be imprecise: hedgers may have taken speculative positions, and vice versa. Therefore, we implement a measure of speculative activity, proposed by Chan, Nguyen, and Chan (2015), which is the ratio of daily volume to daily open interest. We term this measure as SpecTrades, which is defined as…”

Oil speculation and herding behavior in emerging stock markets

“…The details of the sub-periods are provided in Table 1. We measure oil speculation using the speculative ratio of Chan et al (2015), which is defined as the trading volume divided by open interest on a given day. We calculate this ratio using daily data on trading volume and open interest for Brent oil futures contracts traded on the Chicago Mercantile Exchange, with the data obtained from Commodity Systems Inc.…”