Speculation and informational efficiency in commodity futures markets

Jean-Baptiste Bonnier

Journal of International Money and Finance, 2021, vol. 117, issue C

Abstract: We use recent data of the CFTC to re-assess the effects of financial traders on informational efficiency in commodity futures markets. To do so, we focus on excessive volatility as a means to reflect noise in the price discovery process. We show that the role of financial traders on volatility is more complex than often assumed in the literature. Researchers should distinguish between the trading motives of market actors, as well as between increases and decreases in open interest. Several findings stand out. In particular, we find that short-term fluctuations in open interest might primarily be driven by speculators’ demand for liquidity, and that traditional speculators, as identified by the MM category of the CFTC, may be responsible for increasing volatility in several markets.

JEL-codes: G01 G14 G20 Q02 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:117:y:2021:i:c:s026156062100108x

DOI: 10.1016/j.jimonfin.2021.102457

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