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Too much of a good thing? Speculative effects on commodity futures curves

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  • van Huellen, Sophie

Abstract

The increasing inflow of index traders into commodity futures markets has been linked to anomalies in futures curves. At the same time, these investors have been welcomed as liquidity providers. In this paper, I reconcile the apparent dissent. Using factor decomposition, I show (a) that index and hedging positions have offsetting effects on futures curves, and (b) index positions are associated with upward sloping, peaked futures curves, and occasionally wave-like shapes linked to roll effects. These findings suggest that index traders are liquidity providers but can become too much of a good thing if exceeding hedgers' demand for a counterparty.

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  • van Huellen, Sophie, 2020. "Too much of a good thing? Speculative effects on commodity futures curves," Journal of Financial Markets, Elsevier, vol. 47(C).
    • Handle: RePEc:eee:finmar:v:47:y:2020:i:c:s1386418118302295
    DOI: 10.1016/j.finmar.2018.12.001
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    More about this item

    Keywords

    Financialization; Futures curve; Speculation; Soft commodities; Term structure;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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