Fundamentals, Speculation and Commodity Markets

By Pr Michel A. Robe

May 30th 2011, from 9:00am to 17:15 pm – Université Paris-Dauphine, A709

Michel A. Robe – Associate Professor of Finance, American University: Pr. Robe teaches derivatives and international finance at American University’s  (AU) Kogod School of Business in Washington, DC. Before joining AU, he taught international finance and investments at the University of Miami in Florida, and at McGill University in Montréal, Canada. Since being tenured in 2004, he has advised national regulators on investor protection, financial contagion, and commodity markets. He has also served as an expert witness in numerous legal enforcement cases. His research on asset pricing, insider trading, financial regulation, security design, volatility, cross-market financial flows and risk sharing has appeared in leading publications such as the Journal of Financial Economics, Journal of Financial and Quantitative Analysis, International Economic Review, Journal of Futures Markets, in other academic journals and in books. His current work includes research on the limits to arbitrage and market efficiency, the organization and evolution futures markets, commodity speculation, and the role of different types of traders in energy and other derivative markets. Prof. Robe received his Ph.D. in Financial Economics from Carnegie Mellon University.



Detailed program of the seminar :


09h00 – 10h30  Session 1. The Commodity Futures Trading Commission (CFTC) large-trader data


– Presentation of the database used in order to study the positions of different categories of operators on organized markets. This database is non-public and is maintained by the CFTC. It provides trader-level information on individual positions in organized futures markets.

– Focus on large traders (at least 65% of the open interest in many markets, often 90% in energy markets).

– Focus on crude oil, with discussion of other energy and commodity markets.

– Analysis of trading patterns of specific categories of operators from 2000 to 2010.

– Discussion of financialization, including commodity index trading.

10h30 / 10h45 : Coffee Break

11h00 – 12h 30 Session 2. Fundamentals, trading activity and cross maturity linkages


– The database of the CFTC helps documents major changes in the size and in the term structure of oil markets.

+ As recently as 2000, crude oil trading was heavily concentrated on short maturities.

+ Since 2002, market activity in long-dated contracts has increased massively.

– What does it means for the relationship between futures prices having different delivery dates?

+ Impact of increased liquidity amid changing crude oil market fundamentals

– What are the possible implications?

+ Effectiveness of hedges constructed with long-term futures?

+ Quality of the information contained in futures prices across the term structure?

13h00 – 14h00 Lunch


14h00 – 15h30 Session 3. Do energy « paper markets » matter? Evidence from cross-market linkages


This session will focus on cross-market trading activity, energy-equity linkages and possible financial contagion. The main questions will be the following:

– Should trading activity matter for cross-market linkages?

+ Why it should – diversified speculators and the price of commodity-specific risk.

+ Why it could – balance sheets, limits to arbitrage and market efficiency.

– Do commodities and especially energy markets nowadays move in sync with traditional financial assets?

–  Do these empirical findings have implications for the debate on the “financialization” of energy markets?

15h30 – 15h45 Coffee Break

15h45 – 17h15 Session 4. Hedging pressure, excess speculation, and risk premia in energy markets


Energy futures markets are characterised by recurrent price relationships: they indeed are often in backwardation, i.e., the expected future spot price of a commodity is higher than its futures prices. In theory, such a pattern may arise if hedgers are net short and are averse to commodity-specific risk. This session discusses this possibility as well as two other notions:

– The idea that the relative positions of hedgers and speculators in the futures markets should matter

– Trader concentration as another possible driver of risk premia.

The detailed database of the CFTC, which contains information about positions and business lines of each trader, allows one to test those intuitions empirically. The findings give very interesting insights along both dimensions.

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