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Return dynamics during periods of high speculation in a thinly traded commodity market

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  • Martin T. Bohl
  • Martin Stefan

Abstract

This article studies the effects of speculation in a thinly traded commodity futures market, paying particular attention to periods characterized by high‐speculative activity of long–short speculators. Using the speculation ratio as a daily measure for long–short speculation, we employ generalized autoregressive conditional heteroscedasticity regressions to study its impact on return dynamics. Our results for the Chicago Mercantile Exchange feeder cattle futures market suggest that futures returns are predominantly explained by fundamentals, but their volatility is significantly driven by the speculation ratio. This relationship holds for periods of high‐ and low‐speculative activity alike.

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  • Martin T. Bohl & Martin Stefan, 2020. "Return dynamics during periods of high speculation in a thinly traded commodity market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(1), pages 145-159, January.
    • Handle: RePEc:wly:jfutmk:v:40:y:2020:i:1:p:145-159
    DOI: 10.1002/fut.22063
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    Cited by:

    1. Wu, Nan & Wen, Fenghua & Gong, Xu, 2022. "Marionettes behind co-movement of commodity prices: Roles of speculative and hedging activities," Energy Economics, Elsevier, vol. 115(C).

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