van Huellen, Sophie (2020) 'Too much of a good thing? Speculative effects on commodity futures curves.' Journal of Financial Markets, 47 (100480). p. 100480.
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Abstract
The increasing inflow of index traders into commodity futures markets has been linked to anomalies in futures curves. At the same time, these investors have been welcomed as liquidity providers. In this paper, I reconcile the apparent dissent. Using factor decomposition, I show (a) that index and hedging positions have offsetting effects on futures curves, and (b) index positions are associated with upward sloping, peaked futures curves, and occasionally wave-like shapes linked to roll effects. These findings suggest that index traders are liquidity providers but can become too much of a good thing if exceeding hedgers’ demand for a counterparty.
| Item Type: | Journal Article |
|---|---|
| Additional Information: | JEL classification: G13, G14, Q02, Q14 |
| Keywords: | financialization; futures curve; speculation; soft commodities; term structure |
| SOAS Departments & Centres: | Departments and Subunits > Department of Economics |
| ISSN: | 13864181 |
| Copyright Statement: | © 2018. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/ |
| DOI (Digital Object Identifier): | https://doi.org/10.1016/j.finmar.2018.12.001 |
| Date Deposited: | 06 Dec 2018 10:49 |
| URI: | https://eprints.soas.ac.uk/id/eprint/30019 |
| Funders: | Other |
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