On Commodity Price Limits

Journal of Futures Markets, Forthcoming

30 Pages Posted: 27 Nov 2017 Last revised: 12 Jul 2019

See all articles by Rajkumar Janardanan

Rajkumar Janardanan

SummerHaven Investment Management

Xiao Qiao

City University of Hong Kong (CityU)

K. Geert Rouwenhorst

Yale School of Management - International Center for Finance

Date Written: July 30, 2018

Abstract

This paper examines the behavior of futures prices and trader positions around the occurrence of price limits in commodity futures markets. We ask whether limit events are the result of shocks to fundamental volatility or the result of temporary volatility induced by the trading of non-commercial market participants (speculators). We find little evidence that limits events are the result of speculative activity, but instead associated with shocks to fundamentals that lead to persistent price changes. When futures trading halts price discovery migrates to options markets, but option prices provide a biased estimate of subsequent future prices when trading resumes.

Keywords: Commodity Futures, Price Limits, Speculation, Commodity Options, Circuit Breakers, Speculative Trading

JEL Classification: G13, G14

Suggested Citation

Janardanan, Rajkumar and Qiao, Xiao and Rouwenhorst, K. Geert, On Commodity Price Limits (July 30, 2018). Journal of Futures Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3076090 or http://dx.doi.org/10.2139/ssrn.3076090

Rajkumar Janardanan

SummerHaven Investment Management ( email )

Soundview Plaza,
1266 East Main Street
Stamford, CT 06902
United States

Xiao Qiao

City University of Hong Kong (CityU) ( email )

Hong Kong

K. Geert Rouwenhorst (Contact Author)

Yale School of Management - International Center for Finance ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6046 (Phone)
203-432-8931 (Fax)

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