Speculation impact on agricultural and other commodity price movements: before and during the COVID-19 pandemic
2022
Staugaitis, Algirdas Justinas
Motivated by recent commodity price fluctuations and spikes, we examine whether speculation in commodity markets destabilizes the price of agricultural and other commodities. For full 1986–2021 and post-2020 data, we use the Granger non-causality test with a one- to two-week time lag to assess this impact. For commodities market speculation, we utilize both short-term and long-term measurements, which are often employed by other researchers. In our study, we use weekly returns on wheat, soybean, corn, and oats futures from the major US commodities markets as well as two additional commodities for comparison reasons: oil and gold. Our research found that speculative indices and return volatility increased in the oil and gold commodity markets after 2020, but not in the agricultural markets. The non-causality test found that there is no one-way causal effect from speculation to returns as evaluated by the four speculation indicators. Most of the time, returns have a one-way causal effect on speculation. Oil, oats, and notably wheat, provided a few instances of feedback relationships. As a result, we conclude that rising speculation cannot be blamed for price spikes or booms, or that the relationship is at best questionable.
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