Rational destabilization in commodity markets

Déstabilisation rationnelle des marchés de matières premières

David Batista Soares and Etienne Borocco
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David Batista Soares: UNICAEN - Université de Caen Normandie - NU - Normandie Université, ECO-PUB - Economie Publique - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Etienne Borocco: LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: This article tackles the issue of rational destabilization in the commodity markets. The theoretical framework is a three-period model with futures positions revised within the intermediate holding period of the spot market. Technical traders enter the market in the intermediate period. The model outcome is a multiplicity of equilibria that are a source of instability. We show that the risk management of the rising weight of technical trading generates a higher variability in spot prices and damages long hedging. Furthermore, this article highlights caveats about the empirical measures of hedging pressure and excessive speculation that can be biased.

Keywords: Commodity; Speculation; Spéculation; Matières premières agricoles (search for similar items in EconPapers)
Date: 2022
Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-03256534v1
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Citations: View citations in EconPapers (2)

Published in Journal of Commodity Markets, 2022, 25, 34 p. ⟨10.1016/j.jcomm.2021.100190⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03256534

DOI: 10.1016/j.jcomm.2021.100190

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