Speculators, Prices and Market Volatility

By Celso Brunetti, Bahattin Büyüksahin, Jeffrey H. Harris. 2016

161 citations recorded by the source corpus.

We employ data over 2005-2009 which uniquely identify categories of traders to test whether speculators like hedge funds and swap dealers cause price changes or volatility. We find little evidence that speculators destabilize financial markets. To the contrary, speculative trading activity largely reacts to market conditions and reduces volatility levels, consistent with the hypothesis that speculators provide valuable liquidity to the market. These results hold across a variety of products and suggest that hedge funds (with approximately constant risk tolerance as in Deuskar and Johnson [2010]) improve overall market quality.

View Paper: https://www.semanticscholar.org/paper/40862a46bd1e9913b4da9478e49c0046f55ce641

Citations in the corpus

• Forecasting realized volatility of agricultural commodity futures with infinite Hidden Markov HAR models (2019, unknown): “…as the HAR-TCJ model (Corsi et al., 2010) defined as (11) and the HAR-∆J model (Patton & Sheppard, 2015) The significant connection between speculation activities and the market volatility has been addressed in literature (Bessembinder & Seguin, 1992, Chang et al., 2000, Brunetti et al., 2016).”