Does Trading Behaviour Converge across Commodity Markets? Evidence from the Perspective of Hedgers’ Sentiment

Qiang Ji, Walid Bahloul, Jiang-bo Geng and Rangan Gupta
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Walid Bahloul: Governance, Finance and Accounting Laboratory, Faculty of Business and Economics, University of Sfax, Sfax 3018, Tunisia
Jiang-bo Geng: School of Finance, Zhongnan University of Economics and Law, Wuhan 430073, China

No 201930, Working Papers from University of Pretoria, Department of Economics

Abstract: We analyse the connectedness network for commercial traders’ sentiment across different futures markets. Using weekly data over the period of 2 September 2008 to 27 December 2016 on 21 commodity covering agriculture, energy, metals and livestock, we find that: (a) producer/merchant/processor/user (PMPU) in agricultural and energy markets are mainly engaged in cross-hedging in the futures market, and most of them would avoid risks in these markets by operating in the metal markets, which can be considered safe for PMPU traders, and that the cross-hedging strategies may play the role of PMPU sentiment spillover across futures markets; (b) as index traders, the swap dealers operate more in two markets, namely between the agricultural and metal markets, or between the agricultural and energy markets; (c) the influence of geopolitical risks in some countries can affect the stability of energy markets, which in turn can cause PMPU system-wide connectedness.

Keywords: Investor sentiment; commodity market; connectedness; spillover effect (search for similar items in EconPapers)
Pages: 46 pages
Date: 2019-04
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201930

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