Is Speculation Destabilizing?

Brunetti, Celso; Büyükşahin, Bahattin

doi:10.2139/ssrn.1393524

Cited by 56 publications

(47 citation statements)

References 14 publications

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“…The scalping index has a positive and significant coefficient in the variance equation, suggesting that short term speculation has a positive impact on volatility. The other three indexes have instead a negative effect (when significant), that is long term speculation does not destabilize prices (see, among others, Brunetti and Büyükşahin, 2009 Notes: *, ** and *** denote significance at 10%, 5% and 1% levels, respectively. Table 3.…”

Section: Discussionmentioning

confidence: 99%

Futures Price Volatility in Commodities Markets: The Role of Short Term vs Long Term Speculation

2013

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Futures price volatility in commodities markets:The role of short term vs long term speculation Abstract: This paper evaluates how different types of speculation affect the volatility of commodities' futures prices. We adopt four indexes of speculation: Working's T, the market share of non-commercial traders, the percentage of net long speculators over total open interest in future markets, which proxy for long term speculation, and scalping, which proxies for short term speculation. We consider four energy commodities (light sweet crude oil, heating oil, gasoline and natural gas) and seven non-energy commodities (cocoa, coffee, corn, oats, soybean oil, soybeans and wheat) over the period 1986-2010 analyzed at weekly frequency. Using GARCH models we find that speculation significantly affects volatility of returns: short term speculation has a positive and significant impact on volatility, while long term speculation generally has a negative effect. The robustness exercise shows that: i) scalping is positive and significant also at higher and lower data frequencies; ii) results remain unchanged through different model specifications (GARCH-in-mean, EGARCH, and TARCH); iii) results are robust to different specifications of the mean equation.JEL Codes: C32; G13; Q11; Q43.

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Section: Discussionmentioning

confidence: 99%

Futures Price Volatility in Commodities Markets: The Role of Short Term vs Long Term Speculation

2013

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Section: Discussionmentioning

confidence: 99%

Futures Price Volatility in Commodities Markets: The Role of Short Term vs Long Term Speculation

2013

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This paper evaluates how different types of speculation affect the volatility of commodities' futures prices. We adopt four indexes of speculation: Working's T, the market share of non-commercial traders, the percentage of net long speculators over total open interest in future markets, which proxy for long term speculation, and scalping, which proxies for short term speculation. We consider four energy commodities (light sweet crude oil, heating oil, gasoline and natural gas) and seven non-energy commodities (cocoa, coffee, corn, oats, soybean oil, soybeans and wheat) over the period 1986-2010 analyzed at weekly frequency. Using GARCH models we find that speculation significantly affects volatility of returns: short term speculation has a positive and significant impact on volatility, while long term speculation generally has a negative effect. The robustness exercise shows that: i) scalping is positive and significant also at higher and lower data frequencies; ii) results remain unchanged through different model specifications (GARCH-in-mean, EGARCH, and TARCH); iii) results are robust to different specifications of the mean equation.JEL Codes: C32; G13; Q11; Q43.

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“…They also argue that there had not been a remarkable increase in correlations between the equity and commodity return series during periods characterized by extreme events 3 .…”

Section: On the Financialization Of Crude Oil Marketsmentioning

confidence: 99%

“…Büyükşahin and Robe [5] and Silvennoinen and Thorp [33]) find that the conditional correlation between commodity futures returns and US stock index returns had increased especially in periods char- 3 That is, periods in which the returns on the equity or stock indexes were significantly above the mean observed during a given period.…”

Section: On the Financialization Of Crude Oil Marketsmentioning

confidence: 99%

“…In their analysis of the causality relationship between changes in net long positions (PNL) held by non-commercial firms and crude oil price changes, Sanders et al [32] By employing data representing individual positions taken by traders, Brunetti and Büyükşahin [3] suggest that movements in financial flows can not be used to forecast either the price level and volatility of oil futures prices.…”

Section: On the Effects Of Speculation On Oil Pricesmentioning

confidence: 99%

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Big Fish: Oil Markets and Speculation

2015

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The role of speculators in the oil markets has been vastly investigated during the last few years. Several authors focused on the definition of speculation while others examined the relationship between oil prices and the behavior of trading actors. In this paper, we formulate a new theory able to describe "hedging needs" as well as the role of speculators in the crude oil market. According to our model, the different strategies of producers and consumers aimed at defending themselves against abrupt oil price changes can be satisfied only if speculators play a very active role. Due to the rapid growth in shale oil production, the importance of speculation in ensuring an equilibrium in the U.S. crude oil market has consequently grown noticeably. We estimate an econometric conditional Error Correction Model (ECM) applying Pesaran's bound tests, over the sample February 2000 November 2014, using WTI and CFTC data. Our theory is well supported by econometric evidence. In other words, our model is suitable to demonstrate how commercial operators act on the market. In addition, the increasing importance of future contracts (also known as financialisation of crude oil market) helps in reaching a level of prices close to the equilibrium one. Finally, we are able to find evidence of a positive impact of the action of speculators on the efficiency of oil markets as they help stabilizing prices.

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Is Speculation Destabilizing?

Cited by 56 publications

References 14 publications

Futures Price Volatility in Commodities Markets: The Role of Short Term vs Long Term Speculation

Futures Price Volatility in Commodities Markets: The Role of Short Term vs Long Term Speculation

Futures Price Volatility in Commodities Markets: The Role of Short Term vs Long Term Speculation

Big Fish: Oil Markets and Speculation

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