Assessing the Financialization Hypothesis

In light of the ongoing growth in hedge fund and investment bank exposure in the NYMEX WTI crude oil futures market since the global financial crisis, we have applied linear causality tests to identify if each individual trader group in the disaggregated commitment of trader's report have prior destabilising effect on market return (the rate of change in crude oil prices), price volatility and the futures‐spot spread in the period 2009–2015. Consistent with the CFTC's disaggregated classification system, the trader groups considered are physical participants, swap dealers and money managers. In order to capture the nonlinear causality relationship, the Diks and Panchenko (Journal of Economic Dynamics and Control, 2006, 30, 1647) non‐parametric causality approach has also been utilised. Test results demonstrate that changes in the net positions of physical participants has both linear and nonlinear positive causality on expected market return, as well as feedback loops. Change in swap dealers net position, however, only have linear bidirectional causality with market return and futures‐spot spread, with unidirectional Granger causality with price volatility. While money managers were not price trend followers, they have preceding influence on market risk and return dynamics. It can be concluded that swap dealers and money managers have distortionary effect on market return, price volatility and the futures‐spot spread. Instead, Physical participants distortionary effect is restricted to market return.

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“… See for instance, Masters (), Kennedy (), Singleton (), Fattouh et al . (), Fattouh and Mahadeva (). …”

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Distortionary effect of trading activity in NYMEX crude oil futures market: post crisis

Naderian

Javan

2017

OPEC Energy Review

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Commodities, Financialization, and Heterogeneous Agents

Branger¹,

Grüning

Schlag

2016

SSRN Journal

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Assessing the Financialization Hypothesis

Cited by 2 publications

References 49 publications

Distortionary effect of trading activity in NYMEX crude oil futures market: post crisis

Distortionary effect of trading activity in NYMEX crude oil futures market: post crisis

Commodities, Financialization, and Heterogeneous Agents

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