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http://dx.doi.org/10.15207/JKCS.2017.8.11.383

Effects of Investors' Sentiment on Commodity Futures Prices  

Lee, Hyun-Bok (Korea Institute of Geoscience and Mineral Resources)
Park, Cheol-Ho (School of Business, Chungbuk National University)
Publication Information
Journal of the Korea Convergence Society / v.8, no.11, 2017 , pp. 383-391 More about this Journal
Abstract
This study examines the relationship between sentiment of speculators and price movements in the futures markets of WTI crude oil, copper, and wheat during the period 2003~2014 using Granger causality tests. The results indicate that speculative positions overall has no predictive power for returns in each futures market. Rather, returns seem to have effects on speculators' sentiment especially during periods of both economic expansion and recovery. During a recession, meanwhile, changes of speculators' sentiment index in the WTI crude oil and copper markets provide predictive power for returns in a positive direction, suggesting that speculators' pessimistic sentiment aggravates declines in commodity prices. Since the effects of speculative positions on market prices are ambiguous, tight regulations on speculative trading are not advisable. In a bearish market, however, regulatory bodies should consider raising speculative position limits because large speculative short positions and (or) liquidation of index traders' long positions may lead steep price declines.
Keywords
Commodity Futures; Commodity Index; Speculation; Index Traders; Granger Causality;
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