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This paper examines how increased speculator participation in the commodity
futures market affects spot price volatility. Consistent with results from the
majority of existing literature on this subject, I find no evidence that speculators
destabilize the commodity spot market. More importantly, I include data from
2012 to 2021, a period that is rarely covered or discussed by existing work,
and compare the result with that obtained from pre-2012 data. My findings
show that as speculator share across commodity markets increases to a certain
extent, they become less stabilizing compared to pre-2012 periods. My analysis
suggests that while speculators continue to reduce spot price volatility overall
in the status quo, their excessive share can potentially accentuate spot price
movements in some cases. This implies that the well-known Masters hypothesis,
which recommends an ideal range of speculator share, could be valid under
certain circumstances.
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