Via the Social Science Research Network:
June 19, 2013
Review of Financial Studies, Forthcoming
Abstract:
Using proprietary energy futures position data, we provide evidence that
mean hedger profits are negative while speculator (especially hedge
fund) profits are positive; that speculators and hedgers who hold long
(short) positions when likely hedgers in aggregate are net short (long)
have higher profits than traders whose net positions align with likely
hedgers; and that profits on long positions vary inversely with
inventories and directly with price volatility. These findings are
consistent with the risk premium, hedging pressure, and modern theory of
storage hypotheses, respectively. Further, our findings suggest that
commodity futures momentum may be due largely to hedging pressure.
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