Advanced Search
MyIDEAS: Login

Revealing the impact of index traders on commodity futures markets

Contents:

Author Info

  • Gabriel Power
  • Calum Turvey

Abstract

Commodity futures prices and volatility increased dramatically from 2006 to 2008, following a period during which index traders, a class of large investment funds, took on massive commodity futures positions. This article presents a method to reveal the extent to which index trader trading activity (volume) might have caused increases in futures price volatility. This approach is useful when position-level data are incomplete or confidential, as with index trader position data. The method is applied to leading agricultural commodity futures data. The impact of index traders is identified during their period of greatest activity, that is, 2005 to 2006, using aggregated volume data that are filtered using wavelet transforms. The filtering decision rule is guided by the Commodity Futures Trading Commission's (CFTC) finding that index traders do not engage in short-run trades. A joint model of futures (filtered) volume and (unfiltered) price volatility is estimated by 2SLS to account for the endogeneity of prices and volume. As a robustness check, both log-range and GARCH measures of volatility are used. The evidence provides no support for the claim that index traders have increased price volatility for storable commodities (grains/oilseeds) and only weak support in the case of nonstorable commodities (meats).

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.informaworld.com/openurl?genre=article&doi=10.1080/13504851003761848&magic=repec&7C&7C8674ECAB8BB840C6AD35DC6213A474B5
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 18 (2011)
Issue (Month): 7 ()
Pages: 621-626

as in new window
Handle: RePEc:taf:apeclt:v:18:y:2011:i:7:p:621-626

Contact details of provider:
Web page: http://www.tandfonline.com/RAEL20

Order Information:
Web: http://www.tandfonline.com/pricing/journal/RAEL20

Related research

Keywords:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:taf:apeclt:v:18:y:2011:i:7:p:621-626. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.