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Rational destabilization in commodity markets

Abstract : This article tackles the issue of rational destabilization in the commodity markets. The theoretical framework is a three-period model with futures positions revised within the intermediate holding period of the spot market. Technical traders enter the market in the intermediate period. The model outcome is a multiplicity of equilibria that are a source of instability. We show that the risk management of the rising weight of technical trading generates a higher variability in spot prices and damages long hedging. Furthermore, this article highlights caveats about the empirical measures of hedging pressure and excessive speculation that can be biased.
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Contributor : Regis Grateau <>
Submitted on : Thursday, June 10, 2021 - 12:01:59 PM
Last modification on : Tuesday, June 15, 2021 - 2:57:32 PM



David Batista Soares, Etienne Borocco. Rational destabilization in commodity markets. Journal of Commodity Markets, Elsevier, In press, pp.100190. ⟨10.1016/j.jcomm.2021.100190⟩. ⟨hal-03256534⟩



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