Speculation and commodity valuations : investigating the effects of speculation in the markets for oil and gold

Master Thesis


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University of Cape Town

The dissertation presents a critique of this study and offers an alternative specification of the equilibrium equations which are central to the VECM approach. In place of the time trend included in the equilibrium model specified by Antoshin and Samiei, the model specified in the dissertation relies on the arbitrage relationship between spot and futures prices as the equilibrium relationship in the markets for oil and gold. This enabled the study to conclude that the important assertion made by Antoshin and Samiei that, in the market for oil, causality has been from higher prices to increased speculative activity, and not vice versa, cannot be substantiated. In both markets investigated, the application of the revised equilibrium model finds that speculation has a pervasive and relatively stable effect on prices. In the oil market, speculation only has an effect in the short run, while the long run equilibrium price of oil is independent of the effects of speculation - long run causation in either direction is precluded by the stationarity of speculation. In the market for gold, speculation influences prices in both the short run and long run.

Includes bibliographical references (leaves 41-42).