The influence of uncertainty on commodity futures returns and trading behaviour

Joshua Laubsch, Lee A. Smales and Duc Vo

The Quarterly Review of Economics and Finance, 2024, vol. 98, issue C

Abstract: We utilise measures of economic policy uncertainty (EPU) and geopolitical risk (GPR), as well as commitments of traders (COTs), to investigate the influence of uncertainty on commodity markets. We find that uncertainty has a significant influence on returns, but the direction of the response is due to whether uncertainty emanates from demand shocks (EPU) or supply shocks (GPR). Uncertainty is also positively related to volatility and trading volume. Importantly, we also find that the net positions of both commercial and non-commercial traders are influenced by uncertainty levels. Examination of high uncertainty and recessionary periods indicates that our results are state dependent.

Keywords: Commodity futures; Geopolitical risk (GPR); Economic policy uncertainty (EPU); Trading behaviour; CFTC commitment of traders (search for similar items in EconPapers)
JEL-codes: G10 G13 G40 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:98:y:2024:i:c:s1062976924001212

DOI: 10.1016/j.qref.2024.101915

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