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Do different speculation strategies cause distinct impacts on the volatility of the live cattle futures in Brazil?

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  • Santos, Augusto Seabra
  • Almeida, Alexandre Nunes

Abstract

This study explores the relationship between speculators and the volatility of live cattle futures in Brazil, focusing on two distinct categories of speculation: day traders (and scalpers) and institutional investors. Analyzing the nearest and October contracts from 2006 to 2019, the research employs the ARIMA-GARCH methodology to estimate volatilities. Additional analyses are conducted to estimate the expected and unexpected effects of speculators on the previously determined volatility levels. Our findings indicate that day trader speculators heighten the volatility of contracts nearing expiration, primarily due to their unexpected actions and limited market information usage. They tend to buy high and sell low. In contrast, institutional investors, with access to more comprehensive information, have a moderate influence on volatility, capable of strategically maneuvering market distortions. The accuracy of the conclusions is strengthened by robustness and placebo tests.

Suggested Citation

  • Santos, Augusto Seabra & Almeida, Alexandre Nunes, 2025. "Do different speculation strategies cause distinct impacts on the volatility of the live cattle futures in Brazil?," Journal of Commodity Markets, Elsevier, vol. 37(C).
    • Handle: RePEc:eee:jocoma:v:37:y:2025:i:c:s2405851325000029
    DOI: 10.1016/j.jcomm.2025.100458
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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