Futures price volatility in commodities markets: The role of short term vs long term speculation

Matteo Manera (), Marcella Nicolini and Ilaria Vignati ()
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Ilaria Vignati: Fondazione Eni Enrico Mattei

No 42, DEM Working Papers Series from University of Pavia, Department of Economics and Management

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.

Keywords: Commodities futures markets; Speculation; Scalping; Working’s T, Data frequency; GARCH models (search for similar items in EconPapers)
JEL-codes: C32 G13 Q11 Q43 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2013-04
New Economics Papers: this item is included in nep-agr, nep-fmk and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Futures Price Volatility in Commodities Markets: The Role of Short Term vs Long Term Speculation (2013)
Working Paper: Futures Price Volatility in Commodities Markets: The Role of Short Term vs Long Term Speculation (2013)
Working Paper: Futures price volatility in commodities markets: The role of short term vs long term speculation (2013)
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