Price discovery in commodity derivatives: Speculation or hedging? |
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Authors: | Marc J M Bohmann David Michayluk Vinay Patel |
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Institution: | UTS Business School, Department of Finance, University of Technology Sydney, Sydney, New South Wales, Australia |
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Abstract: | We investigate whether commodity futures or options markets play a more important role in the price discovery process in the six most actively traded markets: crude oil, natural gas, gold, silver, corn, and soybeans. Using new information leadership techniques, we report new evidence and report that both markets make a meaningful contribution to price discovery in recent times; however, on average, options lead futures in reflecting new information for a majority of these commodities. We find that increased speculation, rather than hedging activity, in commodity derivatives is a key determinant of price discovery in the options markets. |
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Keywords: | commodity futures hedging information share options price discovery speculation |
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