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Speculative Activity and Copper Price

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Author Info
Patricio Jaramillo
Jorge Selaive

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Abstract

In the last few years, we have observed a significant boot in copper prices which has been accompanied with a larger share of speculators who trade in this market based on reasons different to production or processing of the metal. In fact, long positions of speculators increased from 25% in 2002 to 47% in 2005. In this work, we build a comprehensive weekly database with positions of noncommercials agents in the copper futures market for the period 1992 -2006, to analyze its association with the level and volatility of copper prices. Our results support the view that speculators do not have permanent effects on the level of prices, although they may play a significant role in transitory movements of prices. Once we explore the role in the amplitude of price fluctuations, we find a positive but no significant effect of speculators´ positions in the volatility. Based on the results, it is advisably to follow the positions of speculators to improve the understanding of short-term variations in copper prices.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 384.

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Date of creation: Dec 2006
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Handle: RePEc:chb:bcchwp:384

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  1. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-55, January. [Downloadable!] (restricted)
  2. Rünstler, Gerhard & Jumah, Adusei & Karbuz, Sohbet, 1995. "Arbitrage in Commodity Markets: A Full Systems Cointegration Analysis," Economics Series 4, Institute for Advanced Studies. [Downloadable!]
  3. Eduardo Borensztein & Carmen Reinhart, 1994. "The Macroeconomic Determinants of Commodity Prices," IMF Working Papers 94/9, International Monetary Fund.
    Other versions:
  4. Brenner, Robin J. & Kroner, Kenneth F., 1995. "Arbitrage, Cointegration, and Testing the Unbiasedness Hypothesis in Financial Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(01), pages 23-42, March. [Downloadable!]
  5. Fleming, Jeff & Ostdiek, Barbara, 1999. "The impact of energy derivatives on the crude oil market," Energy Economics, Elsevier, vol. 21(2), pages 135-167, April. [Downloadable!] (restricted)
  6. Kocagil, Ahmet Enis, 1997. "Does Futures Speculation Stabilize Spot Prices? Evidence from Metals Markets," Applied Financial Economics, Taylor and Francis Journals, vol. 7(1), pages 115-25, February. [Downloadable!] (restricted)
  7. Weiner, Robert J., 2002. "Sheep in wolves' clothing? Speculators and price volatility in petroleum futures," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(2), pages 391-400. [Downloadable!] (restricted)
  8. Thomas Klitgaard & Laura Weir, 2004. "Exchange rate changes and net positions of speculators in the futures market," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 17-28. [Downloadable!]
  9. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April. [Downloadable!] (restricted)
  10. Grossman, Sanford J, 1988. "An Analysis of the Implications for Stock and Futures Price Volatility of Program Trading and Dynamic Hedging Strategies," Journal of Business, University of Chicago Press, vol. 61(3), pages 275-98, July. [Downloadable!] (restricted)
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  11. Tauchen, George E & Pitts, Mark, 1983. "The Price Variability-Volume Relationship on Speculative Markets," Econometrica, Econometric Society, vol. 51(2), pages 485-505, March. [Downloadable!] (restricted)
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