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Hedging or speculation in derivative markets: the case of energy futures contracts

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  • Cetin Ciner
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    Abstract

    This study examines whether hedging or speculation is the principal motive behind trading in energy futures markets. This question is important since facilitating risk allocation is considered to be one of the main benefits of the futures markets, while excess speculation in futures markets could destabilize the underlying spot market. Studying the linkage between volume and subsequent price movements leads to the conclusion that hedgers dominate speculators in all of the markets examined.

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    Bibliographic Info

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

    Volume (Year): 2 (2006)
    Issue (Month): 3 (May)
    Pages: 189-192

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    Handle: RePEc:taf:apfelt:v:2:y:2006:i:3:p:189-192

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    1. Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 109-126, March.
    2. Brian M. Lucey, 2005. "Speculation or hedging in the Irish stock exchange," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(1), pages 9-14, January.
    3. Guillermo Llorente & Roni Michaely & Gideon Saar & Jiang Wang, 2002. "Dynamic Volume-Return Relation of Individual Stocks," Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1005-1047.
    4. Wang, Changyun, 2001. "The behavior and performance of major types of futures traders," MPRA Paper 36426, University Library of Munich, Germany, revised Jul 2002.
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