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Effect of Speculators’ Position Changes on the LME Futures Market

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  • Jaehwan Park

    (Commodity Research Center, Public Procurement Service, Daejeon 35208, Korea)

Abstract

This paper employs Granger causality tests to analyze the role of speculators using weekly COTR (commitment of traders reports) data covering the period of August 2014 to July 2017. The paper presents statistically significant evidence that the position changes of speculators, such as hedge funds and CTAs (commodity trading advisors), unidirectionally Granger-cause the prices of base metals, such as aluminum, copper, and zinc. This finding is a result of causality going from the levels of net futures positions of money managers to futures price changes on the London Metal Exchange (LME). However, producers’ and swap dealers’ speculative roles in price-formation are rejected in Granger causality tests. This paper presents clear results with important market implications.

Suggested Citation

  • Jaehwan Park, 2019. "Effect of Speculators’ Position Changes on the LME Futures Market," IJFS, MDPI, vol. 7(2), pages 1-9, June.
    • Handle: RePEc:gam:jijfss:v:7:y:2019:i:2:p:32-:d:239935
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    References listed on IDEAS

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    6. Jaehwan Park, 2018. "Volatility Transmission between Oil and LME Futures," Applied Economics and Finance, Redfame publishing, vol. 5(2), pages 65-72, March.
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    8. Jaehwan Park, 2019. "The Role of Canceled Warrants in the LME Market," IJFS, MDPI, vol. 7(1), pages 1-10, February.
    9. repec:cii:cepiei:2011-q2-3-126-127-5 is not listed on IDEAS
    10. Isabel Figuerola‐Ferretti & Christopher L. Gilbert, 2008. "Commonality in the LME aluminum and copper volatility processes through a FIGARCH lens," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(10), pages 935-962, October.
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    Cited by:

    1. Borkowski, Bolesław & Krawiec, Monika & Karwański, Marek & Szczesny, Wiesław & Shachmurove, Yochanan, 2021. "Modeling garch processes in base metals returns using panel data," Resources Policy, Elsevier, vol. 74(C).
    2. Byungkwon Lim & Hyeon Sook Kim & Jaehwan Park, 2020. "Direct Effect of TC on the LME Copper Prices," Economies, MDPI, vol. 8(2), pages 1-9, May.
    3. Byungkwon Lim & Hyeon Sook Kim & Jaehwan Park, 2021. "Implicit Interpretation of Indonesian Export Bans on LME Nickel Prices: Evidence from the Announcement Effect," Risks, MDPI, vol. 9(5), pages 1-7, May.
    4. Jaehwan Park & Byungkwon Lim, 2018. "Testing Efficiency of the London Metal Exchange: New Evidence," IJFS, MDPI, vol. 6(1), pages 1-10, March.

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