 A dynamic model of hedging and speculation in the commodity futures marketsGiulio Cifarelli () and Giovanna Paladino Journal of Financial Markets, 2015, vol. 25, issue C, 1-15 Abstract: Over the 1990–2010 time period, a dynamic interaction between spot and futures returns in five commodity markets (copper, cotton, oil, silver, and soybeans) is empirically validated. An error correction relationship for the cash returns and a non-linear parameterization of the corresponding futures returns are combined with a bivariate CCC-GARCH representation of the conditional variances. Hedgers and speculators are contemporaneously at work in the futures markets, the role of the latter being far from negligible. In order to capture the consequences of the growing turbulence of these markets, a two-state regime-switching model for futures returns is developed. In this way financial traders׳ time-varying risk appetites are allowed to interact with hedgers׳ demand in determining both future and spot prices. Keywords: Commodity spot and futures markets; Dynamic hedging; Speculation; Non-linear GARCH; Markov regime switching (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:25:y:2015:i:c:p:1-15 DOI: 10.1016/j.finmar.2015.07.002 Access Statistics for this article Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam More articles in Journal of Financial Markets from Elsevier |
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