Price discovery in commodity derivatives: Speculation or hedging?

Marc J. M. Bohmann, David Michayluk () and Vinay Patel ()

Journal of Futures Markets, 2019, vol. 39, issue 9, 1107-1121

Abstract: We investigate whether commodity futures or options markets play a more important role in the price discovery process in the six most actively traded markets: crude oil, natural gas, gold, silver, corn, and soybeans. Using new information leadership techniques, we report new evidence and report that both markets make a meaningful contribution to price discovery in recent times; however, on average, options lead futures in reflecting new information for a majority of these commodities. We find that increased speculation, rather than hedging activity, in commodity derivatives is a key determinant of price discovery in the options markets.

Date: 2019
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