Permanent and transitory price shocks in commodity futures markets and their relation to speculation

Marco Haase, Yvonne Seiler Zimmermann and Heinz Zimmermann ()
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Marco Haase: University of Basel
Yvonne Seiler Zimmermann: Lucerne University of Applied Sciences and Arts
Heinz Zimmermann: University of Basel

Empirical Economics, 2019, vol. 56, issue 4, No 10, 1359-1382

Abstract: Abstract This paper takes an innovative look at the relationship between commodity futures prices and speculation. Contrary to other studies, we analyze the effect of speculation on temporary and permanent futures price shocks estimated from a cointegrated system of pairwise short- and long-dated contracts. Where cointegration is found, the long-term equilibrium is determined by the long-dated contract, while the adjustment toward equilibrium is restored by the short-dated contract (except for cotton). Granger causality tests cannot reject the null hypothesis that speculation as measured by Working’s T index has no effect on squared permanent price shocks for 7 out of 9 commodities. Where the null hypothesis is rejected, the relationship exhibits a negative sign, i.e., speculation has a stabilizing effect.

Keywords: Commodity futures prices; Speculation; Cointegration; Temporary and permanent price shocks (search for similar items in EconPapers)
JEL-codes: C22 G13 Q02 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s00181-017-1387-2

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