Oil Price Volatility and the Role of Speculation
Title | Oil Price Volatility and the Role of Speculation PDF eBook |
Author | Samya Beidas-Strom |
Publisher | International Monetary Fund |
Total Pages | 34 |
Release | 2014-12-12 |
Genre | Business & Economics |
ISBN | 1498303846 |
How much does speculation contribute to oil price volatility? We revisit this contentious question by estimating a sign-restricted structural vector autoregression (SVAR). First, using a simple storage model, we show that revisions to expectations regarding oil market fundamentals and the effect of mispricing in oil derivative markets can be observationally equivalent in a SVAR model of the world oil market à la Kilian and Murphy (2013), since both imply a positive co-movement of oil prices and inventories. Second, we impose additional restrictions on the set of admissible models embodying the assumption that the impact from noise trading shocks in oil derivative markets is temporary. Our additional restrictions effectively put a bound on the contribution of speculation to short-term oil price volatility (lying between 3 and 22 percent). This estimated short-run impact is smaller than that of flow demand shocks but possibly larger than that of flow supply shocks.
Crude Oil Pricing
Title | Crude Oil Pricing PDF eBook |
Author | Michael Hall Yan |
Publisher | |
Total Pages | 104 |
Release | 2012 |
Genre | |
ISBN |
This paper is intended to better understand the effects of speculation on crude oil prices. While speculation has many benefits such as increasing market liquidity and bearing market risks that other wish to offset, speculation can also create unwanted market volatility and economic bubbles. During the past decade, crude oil prices have been extremely volatile causing increased controversy between investors and regulators regarding the role that oil speculation has played in the price of crude oil. This report examines the relationship between crude oil spot and futures prices to determine the role arbitragers, speculators, and hedgers have had in crude oil pricing.
Oil Price Dynamics and Speculation
Title | Oil Price Dynamics and Speculation PDF eBook |
Author | Giulio Cifarelli |
Publisher | |
Total Pages | 28 |
Release | 2009 |
Genre | |
ISBN |
This paper assesses empirically whether speculation affects oil price dynamics. The growing presence of financial operators in the oil markets has led to the diffusion of trading techniques based on extrapolative expectations. Strategies of this kind foster feedback trading that may cause large departures of prices from their fundamental values. We investigate this hypothesis using a modified CAPM that follows Shiller (1984) and Sentana and Wadhwani (1992). At first, a univariate GARCH(1,1)-M is estimated assuming that the risk premium is a function of the conditional oil price volatility. The single factor model, however, is outperformed by the multifactor ICAPM (Merton, 1973) which takes into account a larger investment opportunity set. The analysis is then carried out using a trivariate CCC GARCH-M model with complex nonlinear conditional mean equations where oil price dynamics are associated with both stock market and exchange rate behavior. We find strong evidence that oil price shifts are negatively related to stock price and exchange rate changes and that a complex web of time varying first and second order conditional moment interactions affect both the CAPM and feedback trading components of the model. Despite the difficulties, we identify a significant role of speculation in the oil market which is consistent with the observed large daily upward and downward shifts in prices. A clear evidence that it is not a fundamentals-driven market. Thus, from a policy point of view - given the impact of volatile oil prices on global inflation and growth - actions that monitor more effectively speculative activities on commodity markets are to be welcomed.
Just Speculation
Title | Just Speculation PDF eBook |
Author | Robert Cavender |
Publisher | |
Total Pages | 17 |
Release | 2014 |
Genre | |
ISBN |
Oil speculators take a lot of flak for the supposed "damage" they cause to the oil market and the economy as a whole. Price manipulation by speculators has been blamed for nearly all of the woes of our recent energy crisis. However, by transferring risk from producers to individuals who specialize in risk, futures markets in fact act to reduce the price variance that producers face in the market. This allows firms to produce oil on a much less sporadic basis, allowing for more stable prices for consumers. Speculation thus acts to calm the market, not to upset it. The purpose of this paper is to analyze how the introduction of an oil futures market affects the supply volatility of that commodity. I find that following the emergence of the futures market in oil, the volatility of oil production drops significantly from then on, even when controlling for varying factors.
Food Price Volatility and Its Implications for Food Security and Policy
Title | Food Price Volatility and Its Implications for Food Security and Policy PDF eBook |
Author | Matthias Kalkuhl |
Publisher | Springer |
Total Pages | 626 |
Release | 2016-04-12 |
Genre | Business & Economics |
ISBN | 3319282018 |
This book provides fresh insights into concepts, methods and new research findings on the causes of excessive food price volatility. It also discusses the implications for food security and policy responses to mitigate excessive volatility. The approaches applied by the contributors range from on-the-ground surveys, to panel econometrics and innovative high-frequency time series analysis as well as computational economics methods. It offers policy analysts and decision-makers guidance on dealing with extreme volatility.
Speculation and Recent Volatility in the Price of Oil
Title | Speculation and Recent Volatility in the Price of Oil PDF eBook |
Author | James Thomas Einloth |
Publisher | |
Total Pages | 25 |
Release | 2014 |
Genre | |
ISBN |
As the price of crude oil doubled from June 2007 to June 2008, suspicion grew that price was being driven higher by speculation rather than fundamental supply and demand. After having seen the price drop 70 percent from its peak, this explanation may appear more plausible than ever. This paper introduces a new methodology that uses convenience yield - imputed from futures prices - to detect the influence of speculation on the spot price of a storable commodity. The paper finds the evidence inconsistent with speculation having played a major role in the rise of price to $100 per barrel in March 2008. However, the evidence suggests that speculation did play a role in its subsequent rise to $140. Finally, the analysis finds that the collapse in price was caused by an unanticipated decline in demand rather than by speculators unloading their positions. This implies that, absent the discovery of vast new sources of energy, high oil prices will return with the recovery of the global economy.
The Role of Market Speculation in Rising Oil and Gas Prices
Title | The Role of Market Speculation in Rising Oil and Gas Prices PDF eBook |
Author | |
Publisher | |
Total Pages | 60 |
Release | 2006 |
Genre | Natural gas |
ISBN |