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Speculation and its impact on liquidity in commodity markets

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  • Ludwig, Michael

Abstract

In recent years, there has been extensive debate about the increasing speculative activity in commodity markets and passive index-investments, which are blamed for causing extreme long-term variations and price bubbles. This study sheds light on the question of what effect increasing speculative activity has on liquidity characteristics and aims to identify whether speculators are liquidity providers or consumers. This study finds weak evidence that speculative activity provides liquidity in the long term, while short-term speculative trading consumes liquidity. Further, the analysis shows that stock market liquidity and the liquidity of commodities have a strong positive correlation.

Suggested Citation

  • Ludwig, Michael, 2019. "Speculation and its impact on liquidity in commodity markets," Resources Policy, Elsevier, vol. 61(C), pages 532-547.
    • Handle: RePEc:eee:jrpoli:v:61:y:2019:i:c:p:532-547
    DOI: 10.1016/j.resourpol.2018.05.005
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    References listed on IDEAS

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    Cited by:

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    2. Sifat, Imtiaz & Ghafoor, Abdul & Ah Mand, Abdollah, 2021. "The COVID-19 pandemic and speculation in energy, precious metals, and agricultural futures," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    3. Pankaj K. Jain & Ayla Kayhan & Esen Onur, 2024. "Determinants of commodity market liquidity," The Financial Review, Eastern Finance Association, vol. 59(1), pages 9-30, February.
    4. Xiao, Jihong & Wang, Yudong, 2022. "Macroeconomic uncertainty, speculation, and energy futures returns: Evidence from a quantile regression," Energy, Elsevier, vol. 241(C).
    5. Algirdas Justinas Staugaitis & Bernardas Vaznonis, 2022. "Short-Term Speculation Effects on Agricultural Commodity Returns and Volatility in the European Market Prior to and during the Pandemic," Agriculture, MDPI, vol. 12(5), pages 1-26, April.
    6. Kentaro Iwatsubo & Clinton Watkins, 2022. "Causality between Arbitrage and Liquidity in Platinum Futures," JRFM, MDPI, vol. 15(12), pages 1-17, December.

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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