Do speculators drive commodity prices away from supply and demand fundamentals?

Raymond P.H. Fishe and Aaron Smith

Journal of Commodity Markets, 2019, vol. 15, issue C, -

Abstract: No. We show that managed money traders tend to change positions in the same direction as prices, whereas commercial firms change positions in the opposite direction. Using insights from difference of opinion theory, we conclude that managed money traders have strong beliefs about the markets and trade aggressively. Commercial firms are willing to take the other side of these trades, and thus they provide liquidity to managed money firms. However, we find no evidence that this trading dynamic results in prices that deviate significantly from supply and demand fundamentals.

Keywords: Rational expectations; Differences of opinion (search for similar items in EconPapers)
JEL-codes: G1 Q1 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:15:y:2019:i:c:4

DOI: 10.1016/j.jcomm.2018.09.006

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