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Destabilizing or passive? The impact of commodity index traders on equilibrium prices

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  • Sun, Hang
  • Bos, Jaap.W.B.
  • Rodrigues, Paulo

Abstract

We examine the price impact of traders on commodity futures markets. Following the framework of De Long et al. (1990), we empirically identify the existence of positive feedback traders, passive investors, and rational speculators in major global commodity futures markets. Our results show that index trader demand is negatively related to past commodity returns and is positively related to future commodity returns, as De Long et al. (1990) model predicts for passive investors. Furthermore, “non-reportable traders,” who are not obligated to report their positions to the regulators, behave like positive feedback traders, and interact significantly with commodity futures returns as well.

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  • Sun, Hang & Bos, Jaap.W.B. & Rodrigues, Paulo, 2023. "Destabilizing or passive? The impact of commodity index traders on equilibrium prices," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 271-285.
    • Handle: RePEc:eee:reveco:v:83:y:2023:i:c:p:271-285
    DOI: 10.1016/j.iref.2022.08.014
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    Cited by:

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    2. Li, Yan & Liu, Qingfu & Miao, Deyu & Tse, Yiuman, 2024. "Return seasonality in commodity futures," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 448-462.

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    More about this item

    Keywords

    Futures markets; Commodity futures; Index traders; Price volatilities;
    All these keywords.

    JEL classification:

    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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