The debate about the role of speculators in commodity markets has been intensified after the financialization. The current study augments the empirical evidence related to speculators and their impact on volatility of commodity markets. In doing so, the study uses daily data between 12th November 2009 to 30th April 2020 for oil and gold future contracts from Pakistan Mercantile Exchange. The findings suggest that speculative activity positively and significantly affects the returns' volatility. These findings support the destabilizing hypothesis, which argues that speculators create distortions in commodity markets. The findings have important implication for market participants (e.g., absence of welfare gain for hedgers) and regulators.
Speculation, Volatility, Gold future contracts, Oil future contracts, EGARCH, PMEX
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Shear, F. (2021). Speculation and returns' volatility: Evidence from Pakistan Mercantile Exchange. Business Review, 15(2), 75-85. Retrieved from https://ir.iba.edu.pk/businessreview/vol15/iss2/4
January 26, 2021