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|
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- 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.
- 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.
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