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Commodity price dynamics and the nonlinear market impact of technical traders: empirical evidence for the US corn market

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Author Info

  • Westerhoff, Frank
  • Reitz, Stefan

Abstract

We develop a simple model with technical and fundamental traders to explain the cyclical motion of commodity prices. The crucial element of our model is a nonlinear market impact of technical traders: Estimation of our STAR-GARCH model using monthly US corn price data reveals that technical traders increasingly enter the market as booms or slumps enlarge. One reason may be that they only gradually learn about the emergence of persistent price trends. The behavior of trend-extrapolating speculators obviously enforces mispricings and thus contributes to cyclical motion as observed in actual commodity markets.

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File URL: http://www.sciencedirect.com/science/article/pii/S0378437104014220
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Bibliographic Info

Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

Volume (Year): 349 (2005)
Issue (Month): 3 ()
Pages: 641-648

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Handle: RePEc:eee:phsmap:v:349:y:2005:i:3:p:641-648

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Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

Related research

Keywords: Commodity markets; Econophysics; Technical and fundamental analysis; Nonlinearities; STAR-GARCH approach;

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  1. Johnson, Neil F. & Jefferies, Paul & Hui, Pak Ming, 2003. "Financial Market Complexity," OUP Catalogue, Oxford University Press, number 9780198526650.
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