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Does Index Speculation Impact Commodity Prices? An Intraday Futures Analysis Using intraday data, we find that unidirectional causality runs from commodity index linked commodity futures to non-index linked commodity futures for up to one hour but disappears when using daily data. Also, the economic significance of index to non-index commodity transmission declines to zero within about an hour. Finally, we find that the magnitude of index-to-non index returns relationships are positively related to the amount of speculation, both long and short, in the GSCI commodity index futures contract. We conclude that speculative pressures exerted by commodity index investors can impact non-index commodities. These results are likely not due to speculative pressure itself, but rather the subsequent price destabilizing trades of uninformed, positive feedback traders

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  • Yiuman Tse

    (University of Texas at San Antonio)

  • Michael Williams

    (University of Texas at San Antonio)

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  • Yiuman Tse & Michael Williams, 2011. "Does Index Speculation Impact Commodity Prices? An Intraday Futures Analysis Using intraday data, we find that unidirectional causality runs from commodity index linked commodity futures to non-index ," Working Papers 0007, College of Business, University of Texas at San Antonio.
    • Handle: RePEc:tsa:wpaper:0025fin
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    More about this item

    Keywords

    Commodity Futures; Commodity Index Futures; Speculation;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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