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Speculators, Prices and Market Volatility

Author

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  • Celso Brunetti
  • Bahattin Buyuksahin
  • Jeffrey H. Harris

Abstract

We analyze data from 2005 through 2009 that uniquely identify categories of traders to assess how speculators such as hedge funds and swap dealers relate to volatility and price changes. Examining various subperiods where price trends are strong, we find little evidence that speculators destabilize financial markets. To the contrary, hedge funds facilitate price discovery by trading with contemporaneous returns while serving to reduce volatility. Swap dealer activity, however, is largely unrelated to both contemporaneous returns and volatility. Our evidence is consistent with the hypothesis that hedge funds provide valuable liquidity and largely serve to stabilize futures markets.

Suggested Citation

  • Celso Brunetti & Bahattin Buyuksahin & Jeffrey H. Harris, 2015. "Speculators, Prices and Market Volatility," Staff Working Papers 15-42, Bank of Canada.
  • Handle: RePEc:bca:bocawp:15-42
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    References listed on IDEAS

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    Cited by:

    1. Bahloul, Walid & Bouri, Abdelfettah, 2016. "The impact of investor sentiment on returns and conditional volatility in U.S. futures markets," Journal of Multinational Financial Management, Elsevier, vol. 36(C), pages 89-102.
    2. repec:bla:jageco:v:68:y:2017:i:2:p:345-365 is not listed on IDEAS
    3. repec:eee:asieco:v:54:y:2018:i:c:p:69-91 is not listed on IDEAS
    4. repec:eee:ecofin:v:42:y:2017:i:c:p:250-265 is not listed on IDEAS
    5. Linton, O. & Mahmoodzadeh, S., 2018. "Implications of High-Frequency Trading for Security Markets," Cambridge Working Papers in Economics 1802, Faculty of Economics, University of Cambridge.
    6. Genevre Covindassamy & Michel A. Robe & Jonathan Wallen, 2016. "Sugar With Your Coffee?: Financials, Fundamentals, and Soft Price Uncertainty," IDB Publications (Working Papers) 8588, Inter-American Development Bank.

    More about this item

    Keywords

    International topics; Recent economic and financial developments;

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • G1 - Financial Economics - - General Financial Markets

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