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Rational destabilization in commodity markets
[Déstabilisation rationnelle des marchés de matières premières]

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  • David Batista Soares

    (UNICAEN - Université de Caen Normandie - NU - Normandie Université, ECO-PUB - Economie Publique - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Etienne Borocco

    (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article tackles the issue of rational destabilization in the commodity markets. The theoretical framework is a three-period model with futures positions revised within the intermediate holding period of the spot market. Technical traders enter the market in the intermediate period. The model outcome is a multiplicity of equilibria that are a source of instability. We show that the risk management of the rising weight of technical trading generates a higher variability in spot prices and damages long hedging. Furthermore, this article highlights caveats about the empirical measures of hedging pressure and excessive speculation that can be biased.

Suggested Citation

  • David Batista Soares & Etienne Borocco, 2022. "Rational destabilization in commodity markets [Déstabilisation rationnelle des marchés de matières premières]," Post-Print hal-03256534, HAL.
    • Handle: RePEc:hal:journl:hal-03256534
    DOI: 10.1016/j.jcomm.2021.100190
    Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-03256534
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    References listed on IDEAS

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