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Do speculators drive commodity prices away from supply and demand fundamentals?

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  • Fishe, Raymond P.H.
  • Smith, Aaron

Abstract

No. We show that managed money traders tend to change positions in the same direction as prices, whereas commercial firms change positions in the opposite direction. Using insights from difference of opinion theory, we conclude that managed money traders have strong beliefs about the markets and trade aggressively. Commercial firms are willing to take the other side of these trades, and thus they provide liquidity to managed money firms. However, we find no evidence that this trading dynamic results in prices that deviate significantly from supply and demand fundamentals.

Suggested Citation

  • Fishe, Raymond P.H. & Smith, Aaron, 2019. "Do speculators drive commodity prices away from supply and demand fundamentals?," Journal of Commodity Markets, Elsevier, vol. 15(C), pages 1-1.
    • Handle: RePEc:eee:jocoma:v:15:y:2019:i:c:4
    DOI: 10.1016/j.jcomm.2018.09.006
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    References listed on IDEAS

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    2. Nicholas Apergis & Chritina Christou & Tasawar Hayat & Tareq Saeed, 2020. "U.S. Monetary Policy and Herding: Evidence from Commodity Markets," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 48(3), pages 355-374, September.
    3. Li, Iris & Akyildirim, Erdinc & Conlon, Thomas & Corbet, Shaen, 2025. "Corporate reputational dynamics and their impact on global commodity markets," Journal of Commodity Markets, Elsevier, vol. 37(C).
    4. Mallory, Mindy L., 2025. "A Survey of 50 Years of Commodity Price Analysis, and a Look Ahead to the Next 50," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 50(4), December.
    5. Tröster, Bernhard & Staritz, Cornelia & Grumiller, Jan & Maile, Felix, 2019. "Commodity dependence, global commodity chains, price volatility and financialisation: Price-setting and stabilisation in the cocoa sectors in Côte d'Ivoire and Ghana," Working Papers 62, Austrian Foundation for Development Research (ÖFSE).
    6. Christina Sklibosios Nikitopoulos & Alice Carole Thomas & Jianxin Wang, 2024. "Hedging pressure and oil volatility: Insurance versus liquidity demands," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(2), pages 252-280, February.
    7. Oliver Borgards & Robert L. Czudaj, 2023. "Long‐short speculator sentiment in agricultural commodity markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3511-3528, October.
    8. Wang, Shu & Zhou, Baicheng & Gao, Tianshu, 2023. "Speculation or actual demand? The return spillover effect between stock and commodity markets," Journal of Commodity Markets, Elsevier, vol. 29(C).

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    JEL classification:

    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture
    • G1 - Financial Economics - - General Financial Markets

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