Commodity Markets, Price Limiters and Speculative Price Dynamics

Xuezhong (Tony) He () and Frank Westerhoff

No 136, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: We develop a behavioral commodity market model with consumers, producers and heterogeneous speculators to characterize the nature of commodity price fluctuations and to explore the efectiveness of price stabilization schemes. Within our model, nonlinear interactions between market participants can create either bull or bear markets, or irregular price fluctuations between bulland bear markets. Both the imposition of a bottoming price level (to support producers) or a topping price level (to protect consumers) can reduce market price volatility. However, simple policy rules, such as price limiters, may have unexpected consequences in a complex environment: a minimum price level decreases the average price while a maximum price limit increases the average price. In addition, price limiters influence the price dynamics in an intricate way and may cause volatility clustering.

Keywords: commodity markets; price stabilization; simple limiters; technical and fundamental anaysis; bifurcation analysis; chaos control (search for similar items in EconPapers)
Pages: 22 pages
Date: 2004-10-01
New Economics Papers: this item is included in nep-fin
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Citations: View citations in EconPapers (2)

Published as: He, X. and Westerhoff, F. H., 2005, "Commodity Markets, Price Limiters and Speculative Price Dynamics", Journal of Economic Dynamics and Control, 29(9), 1577-1596.

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Journal Article: Commodity markets, price limiters and speculative price dynamics (2005)
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