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Speculators, Prices, and Market Volatility

Published online by Cambridge University Press:  16 December 2016

Celso Brunetti ,
Bahattin Büyükşahin  and
Jeffrey H. Harris
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Abstract

We use data from 2005–2009 that uniquely identify categories of traders to test how speculators such as hedge funds and swap dealers relate to volatility and price changes. In examining various subperiods where price trends are strong, we find little evidence that speculators destabilize financial markets. To the contrary, hedge fund position changes are negatively related to volatility in corn, crude oil, and natural gas futures markets. Additionally, swap dealer activity is largely unrelated to contemporaneous volatility. Our evidence is consistent with the hypothesis that hedge funds provide valuable liquidity and largely serve to stabilize futures markets.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 51 , Issue 5 , October 2016 , pp. 1545 - 1574
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

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