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The “Necessity” of New Position Limits in Agricultural Futures Markets: The Verdict from Daily Firm‐level Position Data
Author(s) -
Sanders Dwight R.,
Irwin Scott H.
Publication year - 2016
Publication title -
applied economic perspectives and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.4
H-Index - 49
eISSN - 2040-5804
pISSN - 2040-5790
DOI - 10.1093/aepp/ppv019
Subject(s) - futures contract , speculation , position (finance) , economics , index (typography) , commodity , financial economics , futures market , empirical evidence , commission , business , finance , philosophy , epistemology , world wide web , computer science
Regulators are proposing new position limits in U.S. commodity futures markets while the actual impact of long‐only index funds on futures prices continues to be debated. Researchers have noted the data limitations—frequency and market breadth—associated with using data compiled by the U.S. Commodity Futures Trading Commission (CFTC). This research addresses these shortfalls by using daily position data for a specific long‐only index fund. The empirical analysis focuses on the firm‐level position data across 13 U.S. agricultural futures markets. The firm‐level data are shown to be representative of the overall index fund industry. Empirical tests fail to find any evidence linking the firm's trading with market returns. However, there does appear to be a consistent negative relationship between the firm's roll transactions and changes in calendar price spreads. Notably, the direction of this impact runs contrary to the price‐pressure hypothesis. The results of this study, and others, indicate that a clear verdict can be reached—new limits on speculation in agricultural futures markets are unnecessary.