Does Futures Speculation Destabilize Commodity Markets?

This paper examines how speculative futures trading affects commodity markets in terms of price impacts, volatility, and market quality. Contrary to the popular belief that speculators are responsible for the recent commodity price fluctuation, my analysis finds no evidence that speculators destabilize the spot market. Instead, speculators contribute to lower volatility and enhanced market quality. More importantly, the empirical results provide strong evidence that speculators either have no effect or dampen prices during periods of large price movement. My findings suggest speculators have had a significant, and in fact positive, influence on the commodity market during the recent "financialization" period, implying that restricting speculative trading in the futures market is not an efficient way to stabilize the commodity market