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Speculation and informational efficiency in commodity futures markets

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  • Bonnier, Jean-Baptiste

Abstract

We use recent data of the CFTC to re-assess the effects of financial traders on informational efficiency in commodity futures markets. To do so, we focus on excessive volatility as a means to reflect noise in the price discovery process. We show that the role of financial traders on volatility is more complex than often assumed in the literature. Researchers should distinguish between the trading motives of market actors, as well as between increases and decreases in open interest. Several findings stand out. In particular, we find that short-term fluctuations in open interest might primarily be driven by speculators’ demand for liquidity, and that traditional speculators, as identified by the MM category of the CFTC, may be responsible for increasing volatility in several markets.

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  • Bonnier, Jean-Baptiste, 2021. "Speculation and informational efficiency in commodity futures markets," Journal of International Money and Finance, Elsevier, vol. 117(C).
    • Handle: RePEc:eee:jimfin:v:117:y:2021:i:c:s026156062100108x
    DOI: 10.1016/j.jimonfin.2021.102457
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    2. Jin, Jiayu & Han, Liyan & Xu, Yang, 2022. "Does the SDR stabilize investing in commodities?," International Review of Economics & Finance, Elsevier, vol. 81(C), pages 160-172.
    3. Wei-Xing Zhou & Yun-Shi Dai & Kiet Tuan Duong & Peng-Fei Dai, 2023. "The impact of the Russia-Ukraine conflict on the extreme risk spillovers between agricultural futures and spots," Papers 2310.16850, arXiv.org.
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    5. Wang, Xiaoyang, 2022. "Efficient markets are more connected: An entropy-based analysis of the energy, industrial metal and financial markets," Energy Economics, Elsevier, vol. 111(C).

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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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