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Why Do Hedgers Trade So Much?

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  • Ing-Haw Cheng
  • Wei Xiong

Abstract

Futures positions of commercial hedgers in wheat, corn, soybeans and cotton fluctuate much more than expected output. Hedgers' short positions are positively correlated with price changes. Together, these observations raise doubt about the common practice of categorically classifying trading by hedgers as hedging while trading by speculators as speculation, as hedgers frequently change their futures positions over time for reasons unrelated to output fluctuations, arguably a form of speculation.

Suggested Citation

  • Ing-Haw Cheng & Wei Xiong, 2013. "Why Do Hedgers Trade So Much?," NBER Working Papers 19670, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19670
    Note: AP CF
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    References listed on IDEAS

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    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.
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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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