The impact of long-short speculators on volatility of energy commodity futures prices.

Abstract

This paper studies the effect of long-short speculators in four energy commodity futures, all traded on the New York Mercantile Exchange (NYMEX) over the period January 2010 to February 2020. Using the Total Open Interest of Long-Short Speculators (STotal) and the Market Share of Long-Short Speculators (SShare) as measures for speculative activity, the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model is employed to study the impact of long-short speculation on return dynamics. The conclusion of this paper is that long-short speculators do not destabilize the commodity prices. Instead, the evidence points to no effect of long-short speculation on commodity futures prices in the markets and period under scrutiny.