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Speculators, Prices, and Market Volatility

Author

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  • Brunetti, Celso
  • Büyükşahin, Bahattin
  • Harris, Jeffrey H.

Abstract

We use data from 2005–2009 that uniquely identify categories of traders to test how speculators such as hedge funds and swap dealers relate to volatility and price changes. In examining various subperiods where price trends are strong, we find little evidence that speculators destabilize financial markets. To the contrary, hedge fund position changes are negatively related to volatility in corn, crude oil, and natural gas futures markets. Additionally, swap dealer activity is largely unrelated to contemporaneous volatility. Our evidence is consistent with the hypothesis that hedge funds provide valuable liquidity and largely serve to stabilize futures markets.

Suggested Citation

  • Brunetti, Celso & Büyükşahin, Bahattin & Harris, Jeffrey H., 2016. "Speculators, Prices, and Market Volatility," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 51(5), pages 1545-1574, October.
    • Handle: RePEc:cup:jfinqa:v:51:y:2016:i:05:p:1545-1574_00
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    References listed on IDEAS

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    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • G1 - Financial Economics - - General Financial Markets

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