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Hedging pressure and speculation in commodity markets

Author

Listed:
  • Ivar Ekeland

    () (Université Paris-Dauphine, PSL Research University)

  • Delphine Lautier

    () (Université Paris-Dauphine, PSL Research University)

  • Bertrand Villeneuve

    () (Université Paris-Dauphine, PSL Research University)

Abstract

We propose a micro-founded equilibrium model to examine the interactions between the physical and the derivative markets of a commodity. This model provides a unifying framework for the hedging pressure and storage theories. The model shows a variety of behaviors at equilibrium that can be used to analyze price relations for any commodity. Further, through a comparative statics analysis, we precisely identify the losers and winners in the financialization of the commodity markets. Therefore, this paper clarifies the political economy of regulatory issues, like speculators’ influence on prices.

Suggested Citation

  • Ivar Ekeland & Delphine Lautier & Bertrand Villeneuve, 2019. "Hedging pressure and speculation in commodity markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(1), pages 83-123, July.
  • Handle: RePEc:spr:joecth:v:68:y:2019:i:1:d:10.1007_s00199-018-1115-y
    DOI: 10.1007/s00199-018-1115-y
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    References listed on IDEAS

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    Cited by:

    1. Ren'e Aid & Andrea Cosso & Huy^en Pham, 2020. "Equilibrium price in intraday electricity markets," Papers 2010.09285, arXiv.org.
    2. Mohammad Isleimeyyeh, 2020. "The role of financial investors in determining the commodity futures risk premium," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(9), pages 1375-1397, September.
    3. Tietjen, Oliver & Lessmann, Kai & Pahle, Michael, 2021. "Hedging and temporal permit issuances in cap-and-trade programs: The Market Stability Reserve under risk aversion," Resource and Energy Economics, Elsevier, vol. 63(C).

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