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Macroeconomic Conditions, Speculation, and Commodity Futures Returns

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  • Ramesh Adhikari

    (School of Business, Cal Poly Humboldt, Arcata, CA 95521, USA)

  • Kyle J. Putnam

    (School of Business, Linfield University, McMinnville, OR 97128, USA)

Abstract

This paper examines the dynamic relationships between speculative activities, commodity returns, and macroeconomic conditions across five sectors compassing 29 commodities. Using weekly data spanning from January 2000 to July 2023, we construct comprehensive measures of commodity market speculation across five sectors and examine their sector-specific impact on returns through advanced econometric methods, including dynamic conditional correlation models, quantile regressions, Markov-switching models, and time-varying Granger causality tests. Our results reveal that the impact of speculative activities on commodity futures returns is conditional on the commodity sector and prevailing macroeconomic conditions. Moreover, the relationship between macroeconomic factors, speculative activities, and commodity futures returns is time varying. Among the macroeconomic variables, the financial stress indicator, as measured by the St. Louis Fed Financial Stress Index, shows a significant ability to predict commodity futures returns. The relationship between speculation and commodity returns is bi-directional across all sectors.

Suggested Citation

  • Ramesh Adhikari & Kyle J. Putnam, 2025. "Macroeconomic Conditions, Speculation, and Commodity Futures Returns," IJFS, MDPI, vol. 13(1), pages 1-26, January.
    • Handle: RePEc:gam:jijfss:v:13:y:2025:i:1:p:5-:d:1562677
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    References listed on IDEAS

    as
    1. Ing-Haw Cheng & Wei Xiong, 2014. "Financialization of Commodity Markets," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 419-441, December.
    2. Yannick Le Pen & Benoît Sévi, 2013. "Futures trading and the excess comovement of commodity prices," Post-Print hal-01613916, HAL.
    3. Kang, Wenjin & Tang, Ke & Wang, Ningli, 2023. "Financialization of commodity markets ten years later," Journal of Commodity Markets, Elsevier, vol. 30(C).
    4. Haase, Marco & Huss, Matthias, 2018. "Guilty speculators? Range-based conditional volatility in a cross-section of wheat futures," Journal of Commodity Markets, Elsevier, vol. 10(C), pages 29-46.
    5. Working, Holbrook, 1960. "Speculation on Hedging Markets," Food Research Institute Studies, Stanford University, Food Research Institute, vol. 1(2), pages 1-36.
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