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on Market Microstructure |
| By: | Matteo Manera (University of Milan-Bicocca and Fondazione Eni Enrico Mattei); Marcella Nicolini (Department of Economics and Management, University of Pavia); Ilaria Vignati (Fondazione Eni Enrico Mattei) |
| Abstract: | This paper evaluates how different types of speculation affect the volatility of commodities’ futures prices. We adopt four indexes of speculation: Working’s T, the market share of non-commercial traders, the percentage of net long speculators over total open interest in future markets, which proxy for long term speculation, and scalping, which proxies for short term speculation. We consider four energy commodities (light sweet crude oil, heating oil, gasoline and natural gas) and seven non-energy commodities (cocoa, coffee, corn, oats, soybean oil, soybeans and wheat) over the period 1986-2010 analyzed at weekly frequency. Using GARCH models we find that speculation significantly affects volatility of returns: short term speculation has a positive and significant impact on volatility, while long term speculation generally has a negative effect. The robustness exercise shows that: i) scalping is positive and significant also at higher and lower data frequencies; ii) results remain unchanged through different model specifications (GARCH-in-mean, EGARCH, and TARCH); iii) results are robust to different specifications of the mean equation. |
| Keywords: | Commodities futures markets; Speculation; Scalping; Working’s T, Data frequency; GARCH models |
| JEL: | C32 G13 Q11 Q43 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0042&r=mst |
| By: | Olivier Damette |
| Abstract: | From Olsen Financial Studies data on the Euro-Dollar currency pair (2008-2010), we conduct a time-series analysis to explain the role of trading volume on exchange rate volatility (Mixture Distribution Hypothesis), taking into account non-linearity. We find evidence that the MDH holds in turbulent periods, during which spreads and volume trading are high. When spreads and the volume are high, the relationship between trading volume and volatility tends to increase. Linking this result with the Tobin tax debate implies that a Tobin tax would be effective for curbing speculation and reducing exchange rate volatility, even in turbulent periods. This paper provides the first empirical corroboration of this proposition and seems to confirm some previous theoretical papers in the vein of Tobin. All in all, two main results emerged. First, the abundant literature on the MDH, but exclusively based on linear econometrics, should take into account non-linearities. Second, the effect of a Tobin tax on volatility would be slightly context-dependent and always negative. A Tobin tax would have been stabilizing and effective in the 2008 crisis when spreads, volume and volatility were very high. |
| Keywords: | Tobin Tax, exchange rate volatility, STR models, non-linearity, Mixture Distribution Hypothesis. |
| JEL: | E44 F31 C22 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2013-07&r=mst |