The role of speculation in international futures markets on commodity prices

Nicolas Huchet () and Papa Gueye Fam

Research in International Business and Finance, 2016, vol. 37, issue C, 49-65

Abstract: The role of futures contracts on spot prices has been one of the key focus areas of research since the recent surge in commodity prices and increase in the volatility of commodity returns. However, no consensus arises from this literature, and hence it is difficult to link the use of futures contracts in agricultural commodities by non-hedgers and the growing food insecurity within developing countries. The purpose of this paper is to highlight causal relationships from futures contracts to spot prices of underlying assets, namely agricultural commodities. As research that focus on exchange-traded funds do not provide any clear conclusions, we focus on the imbalance between short- and long-open positions, this imbalance being caused by the exchange traded funds’ participation in futures markets. In this paper, we estimate relationships between financial variables including indicators for speculation in futures markets and the returns of cocoa, corn, soybean, wheat, coffee, rice, and sugar on a weekly basis from 1998 to 2013. Significant results lead to Granger-causality tests that in turn validate the hypothesis of a positive impact of speculation in futures markets to returns on the underlying commodities.

Keywords: Agricultural commodities; Futures markets; Financialization; Asset returns (search for similar items in EconPapers)
JEL-codes: C22 D84 G12 Q14 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:37:y:2016:i:c:p:49-65

DOI: 10.1016/j.ribaf.2015.09.034

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