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 journalArticleAcademicpeer-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 languageEnglish
Pages (from-to)271-285
Number of pages15
JournalInternational Review of Economics & Finance
Volume83
DOIs
Publication statusPublished - 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

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