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Van Huellen, Sophie (2020) 'Too much of a good thing? Speculative effects on commodity futures curves.' Journal of Financial Markets, 47 (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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