Why Do Hedgers Trade So Much?
Futures positions of commercial hedgers in wheat, corn, soybeans and cotton fluctuate much more than expected output. Hedgers' short positions are positively correlated with price changes. Together, these observations raise doubt about the common practice of categorically classifying trading by hedgers as hedging while trading by speculators as speculation, as hedgers frequently change their futures positions over time for reasons unrelated to output fluctuations, arguably a form of speculation.
Xiong acknowledges financial support from Smith Richardson Foundation grant #2011-8691. We are grateful to Jose Scheinkman and Glen Weyl for helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Ing-Haw Cheng & Wei Xiong, 2014. "Why Do Hedgers Trade So Much?," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages S183 - S207. citation courtesy of