Return Dynamics During Periods of High Speculation in a Thinly-Traded Commodity Market
Martin T. Bohl and
No 7418, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster
This article studies the effects of speculation in a thinly-traded commodity futures market paying particular attention to periods characterized by high speculative activity of long-short speculators. Using the speculation ratio as a daily measure for long-short speculation, we employ GARCH-regressions to study its impact on return dynamics. Our results for the CME feeder cattle futures market suggest that future returns are predominantly explained by fundamentals, but their volatility is significantly driven by the speculation ratio. This relationship holds for periods of high and low speculative activity alike.
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