A Bitter Brew? Futures Speculation and Commodity Prices
AbstractWe introduce a new approach to measuring the possible impact of futures speculation on spotcommodity prices. We advocate the use of a non-parametric, highly flexible empirical model formeasuring this impact, in order to account for possible non-linearity in the transmission fromfutures to spot market. Empirical results for the coffee market show that most of the changes inspot prices can be attributed to shifts in demand and - in particular - supply. Nevertheless,speculation is an important part of the coffee price generation process. The effect of speculationon the price of coffee is indeed spiky, which explains why traditional, mean-variance basedmethods have failed to identify this. However, it is also significant, both statistically andeconomically. An extensive robustness analysis confirms the validity of our results, and - withinthe limitations posed by the data - we have been able to establish causality.
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Bibliographic InfoPaper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 045.
Date of creation: 2012
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financial economics and financial management ;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-06 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Viral V. Acharya & Lars A. Lochstoer & Tarun Ramadorai, 2011.
"Limits to Arbitrage and Hedging: Evidence from Commodity Markets,"
NBER Working Papers
16875, National Bureau of Economic Research, Inc.
- Acharya, Viral V. & Lochstoer, Lars & Ramadorai, Tarun, 2009. "Limits to Arbitrage and Hedging: Evidence from Commodity Markets," CEPR Discussion Papers 7327, C.E.P.R. Discussion Papers.
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