Search Results for « Commodity Futures »

Abstract This paper investigates the information content of the futures option markets trading activities in determining commodity futures returns. Our findings suggest that position changes in the commodity futures option markets provide incremental predictive power for commodity futures returns in addition to the effects of commodity futures markets position changes. Particularly, for both commercial traders and noncommercial traders, options position changes impact the futures price in the same direction as futures position changes. Furthermore, the nonmomentum of position changes of options market contributes overwhelmingly relative to the idiosyncratic risk and hedging pressure in the case of noncommercial trading.

This paper adds to the well‐documented puzzle of the forward bias of exchange rates. While the exchange rate of a small commodity‐exporting economy, such as Australia, can be closely tied to commodity prices, this paper demonstrates empirically that a portfolio of commodity futures exhibits little, if any, bias. A microfounded small open economy model is developed in which the exchange rate depends on export commodity prices. This is used to demonstrate how systematic expectation errors about the monetary process could cause the bias in exchange rate forwards when there is an absence of bias in commodity futures.