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Do long-short speculators destabilize commodity futures markets?

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  • Miffre, Joëlle
  • Brooks, Chris

Abstract

This paper contributes to the debate on the effects of the financialization of commodity futures markets by studying the conditional volatility of long–short commodity portfolios and their conditional correlations with traditional assets (stocks and bonds). Using several groups of trading strategies that hedge fund managers are known to implement, we show that long–short speculators do not cause changes in the volatilities of the portfolios they hold or changes in the conditional correlations between these portfolios and traditional assets. Thus calls for increased regulation of commodity money managers are, at this stage, premature. Additionally, long–short speculators can take comfort in knowing that their trades do not alter the risk and diversification properties of their portfolios.

Suggested Citation

  • Miffre, Joëlle & Brooks, Chris, 2013. "Do long-short speculators destabilize commodity futures markets?," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 230-240.
  • Handle: RePEc:eee:finana:v:30:y:2013:i:c:p:230-240
    DOI: 10.1016/j.irfa.2013.09.002
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    References listed on IDEAS

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    1. repec:ags:ijfaec:266472 is not listed on IDEAS
    2. repec:eee:jrpoli:v:53:y:2017:i:c:p:135-146 is not listed on IDEAS
    3. Demirer, Rıza & Lee, Hsiang-Tai & Lien, Donald, 2015. "Does the stock market drive herd behavior in commodity futures markets?," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 32-44.
    4. repec:krk:eberjl:v:2:y:2014:i:4:p:71-83 is not listed on IDEAS
    5. Smales, Lee A., 2016. "Trading behavior in S&P 500 index futures," Review of Financial Economics, Elsevier, vol. 28(C), pages 46-55.
    6. Martin T. Bohl & Christoph Sulewski, 2018. "The Impact of Long-Short Speculators on the Volatility of Agricultural Commodity Futures Prices," CQE Working Papers 7718, Center for Quantitative Economics (CQE), University of Muenster.
    7. Arık, Evren & Mutlu, Elif, 2014. "Chinese steel market in the post-futures period," Resources Policy, Elsevier, vol. 42(C), pages 10-17.

    More about this item

    Keywords

    Financialization; Commodity markets; Speculators; Volatility; Correlation;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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