Speculative Activity and Copper Price

In the last few years, we have observed a significant boot in copper prices which has been accompanied with a larger share of speculators who trade in this market based on reasons different to production or processing of the metal. In fact, long positions of speculators increased from 25% in 2002 to 47% in 2005. In this work, we build a comprehensive weekly database with positions of noncommercials agents in the copper futures market for the period 1992 -2006, to analyze its association with the level and volatility of copper prices. Our results support the view that speculators do not have permanent effects on the level of prices, although they may play a significant role in transitory movements of prices. Once we explore the role in the amplitude of price fluctuations, we find a positive but no significant effect of speculators´ positions in the volatility. Based on the results, it is advisably to follow the positions of speculators to improve the understanding of short-term variations in copper prices.