Measuring Financial Investor Presence Through Term Structure Anomalies

We estimate the presence of financial investors in commodity futures markets from anomalies in the term structure. We argue that large-scale inflows from financial investors cause systematic deviations in nearby futures contracts that reflect excessive buying pressure in commodities. We compare this new speculation indicator with popular existing measures including reported CFTC data and the Hamilton and Wu (2014) risk premium. We find substantial financial investor presence in commodity markets from 2004 to 2014. We show that our new speculation measure is better in explaining the variation in oil return volatility than other existing measures.