Fundamentals, Trader Activity and Derivative Pricing

Speculators, Commodities and Cross-Market Linkages

“…Second, commodity-equity linkages fluctuate much more than the linkages between some other asset classes, offering fertile ground for an analysis of what (macroeconomic fundamentals, trading, or both) predicts those fluctuations. 2 Third, we seek to add not only to the asset pricing literature but also to a fastgrowing literature on the financialization of commodity markets -see, e.g., Acharya, Lochstoer & Ramadorai (2011), Brunetti, Büyük!ahin & Harris (2011), Brunetti and Reiffen (2011), Büyük!ahin, Haigh, Harris, Overdahl & Robe (2009), , Cheng, Kirilenko & Xiong (2012), Etula (2010), Hamilton and Wu (2012), Henderson, Pearson & Wang (2012), Hong and Yogo (2012), Irwin and Sanders (2012), Kilian and Murphy (2012), Korniotis (2009), Singleton (2013), Stoll and Whaley (2010), or Tang and Xiong (2012). This paper contributes to the debate on the financialization of commodities by identifying a relationship between financialization and the intensity of cross-market linkages.…”

Do Speculators Drive Crude Oil Futures Prices?

“…Given the predominance of crude oil in the U.S. economy, the price spike also generated substantial attention from regulators, legislators and market critics who decried the existence of excessive speculation in the crude oil futures markets. Indeed, the rise in participation by non-commercial traders during the preceding eight years (see Büyükşahin et al (2009)) provided great fodder for causal connections with concurrent price increases. In this paper we apply rigorous econometric techniques to determine whether position changes of any particular group of traders led crude oil futures price changes from 2000-2009. For perspective, we first calculate Working's (1960) speculative index in the crude oil futures market from 2000 through 2008.…”

Do Financial Investors Destabilize the Oil Price?

“…We will label this bene…t as the convenience yield, and denote it as t;t+ (Pindyck 1993). 5 By the no-arbitrage principle, the two investment strategies should bear the same return. If we denote the spot price as P t and the future price F t;t+ , we have:…”