Price discovery in commodity derivatives: Speculation or hedging?

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...

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Bibliographic Details
Published in:The journal of futures markets 2019-09, Vol.39 (9), p.1107-1121
Main Authors: Bohmann, Marc J. M., Michayluk, David, Patel, Vinay
Format: Article
Language:English
Subjects:
Commodities
commodity
Corn
Discovery
futures
Gold
Hedging
information share
Leadership
Markets
Natural gas
options
Options markets
Petroleum
price discovery
Securities trading
Silver
Soya beans
speculation
Stock exchanges
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Summary: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.
ISSN:0270-7314
1096-9934
DOI:10.1002/fut.22021