Master of Science
Department or Program
Speculative investments have always been a component of the marketplace. Their existence is vital for providing liquidity and risk transfer, allowing for an efficiently operating market. The futures market was originally used by farmers and grain buyers to reduce risk. There has been an observable increase of noncommercial (speculative) investment since the inception of the futures market. There is a belief that these investors may be adversely affecting the market, considering their primary view of the market is as a financial instrument with no actual interest in the physical underlying commodity. Agencies such as the Commodity Futures Trading Commission have even gone as far as proposing position limits in an attempt to control speculation. This paper attempts to find if there is any significant evidence that speculation may be causing adverse effects to commodities and their related prices. With a better understanding of the market and market participants, agencies may be able to make informed decisions related to speculative policies.