Traders’ motivation and hedging pressure in commodity futures markets
- This study seeks to explain the major drivers of trading activity in commodity futures markets and gage the effect of trading activity on commodity prices. Rather than concentrating on a specific commodity subgroup or a particular type of commodity traders, we provide an extensive overview of the behavior across all market participants and their influence on commodity prices by using a broad set of commodity futures contracts. Although commodity futures returns show co-movement with financial fundamentals (U.S. dollar index, equity, and bond markets), based on the Disaggregated Commitment of Traders Report (DCOT), this relationship cannot be attributed to trading activity. Pricing in commodity markets can be predominantly attributed to hedgers and influential speculators (money managers), whereas small speculators (nonreportable traders) are crucial to some soft commodity futures similar to dealers in metals commodity futures. Furthermore, we find limited cases where inventory changes exert a sizable influence on position changes ofThis study seeks to explain the major drivers of trading activity in commodity futures markets and gage the effect of trading activity on commodity prices. Rather than concentrating on a specific commodity subgroup or a particular type of commodity traders, we provide an extensive overview of the behavior across all market participants and their influence on commodity prices by using a broad set of commodity futures contracts. Although commodity futures returns show co-movement with financial fundamentals (U.S. dollar index, equity, and bond markets), based on the Disaggregated Commitment of Traders Report (DCOT), this relationship cannot be attributed to trading activity. Pricing in commodity markets can be predominantly attributed to hedgers and influential speculators (money managers), whereas small speculators (nonreportable traders) are crucial to some soft commodity futures similar to dealers in metals commodity futures. Furthermore, we find limited cases where inventory changes exert a sizable influence on position changes of DCOT traders.…
| Author details: | David BoschGND, Kamal SmimouORCiDGND |
|---|---|
| DOI: | https://doi.org/10.1016/j.ribaf.2021.101529 |
| ISSN: | 0275-5319 |
| ISSN: | 1878-3384 |
| Title of parent work (English): | Research in international business and finance |
| Publisher: | Elsevier |
| Place of publishing: | Amsterdam |
| Publication type: | Article |
| Language: | English |
| Date of first publication: | 2021/09/04 |
| Publication year: | 2022 |
| Release date: | 2023/06/23 |
| Tag: | Commodity; Futures prices; Hedgers; Interaction; Motivation; Speculators; markets |
| Volume: | 59 |
| Article number: | 101529 |
| Number of pages: | 34 |
| Funding institution: | Ministerio de Ciencia e InnovacionInstituto de Salud Carlos IIISpanish GovernmentEuropean Commission [PID2019-108503RB-I00] |
| Organizational units: | Wirtschafts- und Sozialwissenschaftliche Fakultät / Wirtschaftswissenschaften |
| DDC classification: | 6 Technik, Medizin, angewandte Wissenschaften / 65 Management, Öffentlichkeitsarbeit / 650 Management und unterstützende Tätigkeiten |
| Peer review: | Referiert |
