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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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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description 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.
doi_str_mv 10.1002/fut.22021
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source International Bibliography of the Social Sciences (IBSS); Wiley-Blackwell Read & Publish Collection; EBSCO Business Source Ultimate
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
title Price discovery in commodity derivatives: Speculation or hedging?
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