Rational destabilization in commodity markets

Soares, David Batista; Borocco, Etienne

doi:10.1016/j.jcomm.2021.100190

Cited by 4 publications

(1 citation statement)

References 52 publications

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“…Indeed, the insurance premium paid by hedgers to speculators is partially offset by the liquidity premium paid by momentum speculators to hedgers to satisfy their short‐term liquidity demands. Furthermore, based on a dynamic self‐fulfilling rational expectations equilibrium model, Soares and Borocco (2022) provide supporting evidence on the validity of two risk premiums in commodity markets, one for speculators (who tend to be technical traders) and one for hedgers (who tend to be contrarians), while both serve as counterparts to each other's risk‐taking demands. Evidence also supports a convective risk flow away from commodity speculators to hedgers during periods of distress in the financial markets (Cheng et al, 2015).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 97%

Hedging pressure and oil volatility: Insurance versus liquidity demands

Nikitopoulos,

Thomas,

Wang

2023

Journal of Futures Markets

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This study evaluates the dual role of hedging pressure (HP) in oil futures markets and analyses its effects on weekly oil volatility. We find that HP driven by hedgers' insurance demands is negatively related to volatility, while HP driven by speculators' short‐term liquidity demands is positively related to volatility. Oil volatility tends to be more responsive to speculators' short‐term liquidity demands than variations induced by hedgers' insurance demands. These channels are also significant determinants of volatility in inverted and normal markets, with the effects being more pronounced in inverted markets. Under low financial and business‐cycle risk environments, the two HP channels typically have a measurable impact on volatility. These opposing effects of HP on weekly volatility provide empirical support on the significance of the dual role of hedgers in oil markets, as price insurance seekers and as short‐term liquidity providers.

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Section: Literature Review and Hypothesis Developmentmentioning

confidence: 97%

Hedging pressure and oil volatility: Insurance versus liquidity demands

Nikitopoulos,

Thomas,

Wang

2023

Journal of Futures Markets

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RETRACTED ARTICLE: Economic policy uncertainty and commodity market volatility: implications for economic recovery

Xiao

Ayub

2022

Environ Sci Pollut Res

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As a consequence of the COVID-19 pandemic outbreak, most commodities experienced significant price drops, which were expected to continue well into 2020. As a result, the Markov switching model is used to study the influence of policy uncertainty and the COVID-19 pandemic on commodity prices in the USA. Commodity markets are stimulated by economic policy uncertainty, according to results from a two-state Markov switching model. In both high and low regimes, economic policy uncertainty (EPU) influences the commodity market, according to the study's findings. However, in the high regime, EPU has a greater influence on the energy and metal sectors. EPU has different influences on commodity markets in highand low-volatility regimes, according to this study. There is a wide range of correlations between COVID-19 outcomes and EPU and how the prices of natural gas, oil, corn, silver, soybean, copper, gold, and steel respond to these tremors, in both high-and low-volatility tenure. Oil and natural gas, on the other hand, are unaffected by shifts in COVID-19 death rates under either regime. Results show that in both high-and low-volatility regimes, the demand and supply for most commodities are responsive to historical prices.

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Financials threaten to undermine the functioning of emissions markets

Quemin

Pahle

2022

Nat. Clim. Chang.

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Rational destabilization in commodity markets

Cited by 4 publications

References 52 publications

Hedging pressure and oil volatility: Insurance versus liquidity demands

Hedging pressure and oil volatility: Insurance versus liquidity demands

RETRACTED ARTICLE: Economic policy uncertainty and commodity market volatility: implications for economic recovery

Financials threaten to undermine the functioning of emissions markets

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