Commodity Futures Trading Commission
Office of External Affairs (202) 418-5080
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581

Release: 5074-05
For Release: April 29, 2005

CFTC’s Office of the Chief Economist Announces the Release of a Staff Research Report, “Price Dynamics, Price Discovery and Large Futures Trader Interactions in the Energy Complex”

by Michael S. Haigh, Jana Hranaiova and James A. Overdahl

Using a unique set of data from the Commodity Futures Trading Commission (CFTC), the staff studied the relationship between futures prices and the positions of managed money traders (MMTs), commonly known as hedge funds, for the natural gas and crude oil futures markets. The staff also examined the relationship between the positions of MMTs and positions of other categories of traders (e.g., floor traders, merchants, manufacturers, commercial banks, dealers) for the same markets.

The results suggest that on average, MMT participants do not change their positions as frequently as other participants, primarily those who are hedgers. The staff found that there is a significant correlation (negative) between MMT positions and other participant’s positions (including the largest hedgers), and results suggest that it is the MMT traders who are providing liquidity to the large hedgers and not the other way around.

The staff also found that most of the MMT position changes in the very short run are triggered by hedging participants changing their positions. That is, the price changes that prompt large hedgers to alter their positions in the very short run eventually ripple through to MMT participants who will change their positions in response. The staff also found no evidence of a link between price changes and MMT positions (conditional on other participants trading) in the natural gas market, and find a significantly negative relationship between MMT position changes and price changes (conditional on other participants trading) in the crude oil market.

Dr. Michael S. Haigh, is Senior Economist in the Office of the Chief Economist, Dr. Jana Hranaiova is a visiting scholar from the University of New Mexico and Dr. James A. Overdahl is Chief Economist in the Office of the Chief Economist. All correspondence and enquiries should be directed to Dr. Michael Haigh at: U.S. CFTC, Office of the Chief Economist, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581. ph: 202-418-5063; fax: 202-418-5660; e-mail: A special thanks to Steven Cho for providing the data used in this study.

The views expressed in this paper are those of the authors only and do not reflect the views of the CFTC or its staff.

# # #

CFTC Media Contacts
Alan Sobba
(202) 418-5080
R. David Gary
(202) 418-5085
Office of External Affairs

Staff Contact
Michael S. Haigh
Senior Financial Economist
CFTC Office of the Chief Economist
(202) 418-5063

Related Document
Staff Research Report