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On commodity price limits

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  • Rajkumar Janardanan
  • Xiao Qiao
  • K. Geert Rouwenhorst

Abstract

This paper examines the behavior of futures prices and trader positions around the occurrence of price limits in commodity futures markets. We ask whether limit events are the result of shocks to fundamental volatility or the result of temporary volatility induced by the trading of noncommercial market participants (speculators). We find little evidence that limits events are the result of speculative activity, but instead associated with shocks to fundamentals that lead to persistent price changes. When futures trading halts price discovery migrates to options markets, but option prices provide a biased estimate of subsequent future prices when trading resumes.

Suggested Citation

  • Rajkumar Janardanan & Xiao Qiao & K. Geert Rouwenhorst, 2019. "On commodity price limits," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(8), pages 946-961, August.
    • Handle: RePEc:wly:jfutmk:v:39:y:2019:i:8:p:946-961
    DOI: 10.1002/fut.21999
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    References listed on IDEAS

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    Cited by:

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    2. John Hua Fan & Tingxi Zhang, 2020. "The untold story of commodity futures in China," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(4), pages 671-706, April.

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