Abstract

This paper investigates the role of speculative activity in the agricultural commodity futures market in the period 2006-2017. Specifically, the study tests the causal relationship between the prices of fourteen agricultural commodities listed on the US commodity market Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBT) and the trading activity of commodity index traders (CITs) and swap dealers. The analysis uses the Granger Causality test based on a seemingly unrelated regression (SUR) system. The results show that CIT and swap dealer positions did not significantly influence prices of agricultural commodities, but might explain the increase in their price volatility. The findings disprove Masters’ hypothesis that speculators produced a bubble in the commodity market. In this context, any attempt (such as taxes) by lawmakers to limit speculation should be carefully evaluated.

Key words: Commodity index traders, swap dealers, agricultural futures market, Masters’ hypothesis, Granger causality.