A Bitter Brew? Futures Speculation and Commodity Prices
We introduce a new approach to measuring the possible impact of futures speculation on spotcommodity prices. We advocate the use of a non-parametric, highly flexible empirical model formeasuring this impact, in order to account for possible non-linearity in the transmission fromfutures to spot market. Empirical results for the coffee market show that most of the changes inspot prices can be attributed to shifts in demand and - in particular - supply. Nevertheless,speculation is an important part of the coffee price generation process. The effect of speculationon the price of coffee is indeed spiky, which explains why traditional, mean-variance basedmethods have failed to identify this. However, it is also significant, both statistically andeconomically. An extensive robustness analysis confirms the validity of our results, and - withinthe limitations posed by the data - we have been able to establish causality.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: P.O. Box 616, 6200 MD Maastricht|
Phone: +31 (0)43 38 83 830
Web page: http://www.maastrichtuniversity.nl/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Viral V. Acharya & Lars A. Lochstoer & Tarun Ramadorai, 2011.
"Limits to Arbitrage and Hedging: Evidence from Commodity Markets,"
NBER Working Papers
16875, National Bureau of Economic Research, Inc.
- Acharya, Viral V. & Lochstoer, Lars A. & Ramadorai, Tarun, 2013. "Limits to arbitrage and hedging: Evidence from commodity markets," Journal of Financial Economics, Elsevier, vol. 109(2), pages 441-465.
- Acharya, Viral V & Lochstoer, Lars & Ramadorai, Tarun, 2009. "Limits to Arbitrage and Hedging: Evidence from Commodity Markets," CEPR Discussion Papers 7327, C.E.P.R. Discussion Papers.
When requesting a correction, please mention this item's handle: RePEc:unm:umamet:2012045. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Charles Bollen)
If references are entirely missing, you can add them using this form.