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Price discovery in commodity derivatives: Speculation or hedging?

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  • Marc J. M. Bohmann
  • David Michayluk
  • Vinay Patel

Abstract

We investigate whether commodity futures or options markets play a more important role in the price discovery process in the six most actively traded markets: crude oil, natural gas, gold, silver, corn, and soybeans. Using new information leadership techniques, we report new evidence and report that both markets make a meaningful contribution to price discovery in recent times; however, on average, options lead futures in reflecting new information for a majority of these commodities. We find that increased speculation, rather than hedging activity, in commodity derivatives is a key determinant of price discovery in the options markets.

Suggested Citation

  • Marc J. M. Bohmann & David Michayluk & Vinay Patel, 2019. "Price discovery in commodity derivatives: Speculation or hedging?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(9), pages 1107-1121, September.
    • Handle: RePEc:wly:jfutmk:v:39:y:2019:i:9:p:1107-1121
    DOI: 10.1002/fut.22021
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    File URL: https://doi.org/10.1002/fut.22021
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    References listed on IDEAS

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    Cited by:

    1. Edward Curran & Jack Hunt & Vito Mollica, 2020. "Trading protocols and price discovery: Implicit transaction costs in Indian single stock futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(11), pages 1793-1806, November.

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