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Return dynamics during periods of high speculation in a thinly traded commodity market
Author(s) -
Bohl Martin T.,
Stefan Martin
Publication year - 2020
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.22063
Subject(s) - speculation , futures contract , futures market , economics , financial economics , volatility (finance) , heteroscedasticity , commodity market , feeder cattle , autoregressive model , econometrics , monetary economics , finance , environmental science , agricultural science
This article studies the effects of speculation in a thinly traded commodity futures market, paying particular attention to periods characterized by high‐speculative activity of long–short speculators. Using the speculation ratio as a daily measure for long–short speculation, we employ generalized autoregressive conditional heteroscedasticity regressions to study its impact on return dynamics. Our results for the Chicago Mercantile Exchange feeder cattle futures market suggest that futures returns are predominantly explained by fundamentals, but their volatility is significantly driven by the speculation ratio. This relationship holds for periods of high‐ and low‐speculative activity alike.