Destabilizing or passive? The impact of commodity index traders on equilibrium prices

Hang Sun; Jaap W.B. Bos; Paulo Rodrigues

doi:10.1016/j.iref.2022.08.014

Destabilizing or passive? The impact of commodity index traders on equilibrium prices

Hang Sun^*, Jaap W.B. Bos, Paulo Rodrigues

^*Corresponding author for this work

Research output: Contribution to journal › Article › Academic › peer-review

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Abstract

We examine the price impact of traders on commodity futures markets. Following the framework of De Long et al. (1990), we empirically identify the existence of positive feedback traders, passive investors, and rational speculators in major global commodity futures markets. Our results show that index trader demand is negatively related to past commodity returns and is positively related to future commodity returns, as De Long et al. (1990) model predicts for passive investors. Furthermore, “non-reportable traders,” who are not obligated to report their positions to the regulators, behave like positive feedback traders, and interact significantly with commodity futures returns as well.

Original language	English
Pages (from-to)	271-285
Number of pages	15
Journal	International Review of Economics & Finance
Volume	83
DOIs	https://doi.org/10.1016/j.iref.2022.08.014
Publication status	Published - 1 Jan 2023

JEL classifications

q02 - Global Commodity Crises
g11 - "Portfolio Choice; Investment Decisions"
g13 - "Contingent Pricing; Futures Pricing; option pricing"

Keywords

Commodity futures
Futures markets
Index traders
Price volatilities

Access to Document

10.1016/j.iref.2022.08.014

Full TextFinal published version, 2.21 MBLicence: Taverne

Cite this

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title = "Destabilizing or passive? The impact of commodity index traders on equilibrium prices",

abstract = "We examine the price impact of traders on commodity futures markets. Following the framework of De Long et al. (1990), we empirically identify the existence of positive feedback traders, passive investors, and rational speculators in major global commodity futures markets. Our results show that index trader demand is negatively related to past commodity returns and is positively related to future commodity returns, as De Long et al. (1990) model predicts for passive investors. Furthermore, “non-reportable traders,” who are not obligated to report their positions to the regulators, behave like positive feedback traders, and interact significantly with commodity futures returns as well.",

keywords = "Commodity futures, Futures markets, Index traders, Price volatilities",

author = "Hang Sun and Bos, {Jaap W.B.} and Paulo Rodrigues",

note = "data source: Commodity Futures Trading Commission (USA) Funding Information: Sun acknowledges financial support from National Natural Science Foundation of China [grant number: 71903021 ], and DUFE Special Fund for Financial Stability. Publisher Copyright: {\textcopyright} 2022 Elsevier Inc.",

year = "2023",

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doi = "10.1016/j.iref.2022.08.014",

language = "English",

volume = "83",

pages = "271--285",

journal = "International Review of Economics & Finance",

issn = "1059-0560",

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T1 - Destabilizing or passive? The impact of commodity index traders on equilibrium prices

AU - Sun, Hang

AU - Bos, Jaap W.B.

AU - Rodrigues, Paulo

N1 - data source: Commodity Futures Trading Commission (USA) Funding Information: Sun acknowledges financial support from National Natural Science Foundation of China [grant number: 71903021 ], and DUFE Special Fund for Financial Stability. Publisher Copyright: © 2022 Elsevier Inc.

PY - 2023/1/1

Y1 - 2023/1/1

N2 - We examine the price impact of traders on commodity futures markets. Following the framework of De Long et al. (1990), we empirically identify the existence of positive feedback traders, passive investors, and rational speculators in major global commodity futures markets. Our results show that index trader demand is negatively related to past commodity returns and is positively related to future commodity returns, as De Long et al. (1990) model predicts for passive investors. Furthermore, “non-reportable traders,” who are not obligated to report their positions to the regulators, behave like positive feedback traders, and interact significantly with commodity futures returns as well.

AB - We examine the price impact of traders on commodity futures markets. Following the framework of De Long et al. (1990), we empirically identify the existence of positive feedback traders, passive investors, and rational speculators in major global commodity futures markets. Our results show that index trader demand is negatively related to past commodity returns and is positively related to future commodity returns, as De Long et al. (1990) model predicts for passive investors. Furthermore, “non-reportable traders,” who are not obligated to report their positions to the regulators, behave like positive feedback traders, and interact significantly with commodity futures returns as well.

KW - Commodity futures

KW - Futures markets

KW - Index traders

KW - Price volatilities

U2 - 10.1016/j.iref.2022.08.014

DO - 10.1016/j.iref.2022.08.014

M3 - Article

SN - 1059-0560

VL - 83

SP - 271

EP - 285

JO - International Review of Economics & Finance

JF - International Review of Economics & Finance

ER -