The Role of Financial Speculation in Copper Prices

Abstract

The recently ended rise in commodity price boom and the ensuing spectacular price falls that followed, have inspired an interest among the researchers on the role played by other factors besides the physical supply and demand. This paper examines the role played by financial speculation in copper price boom during the last decade. Using least squares with breakpoints, the results indicate that from January 1993 to December 2016 LME real copper spot prices have been characterized by structural changes and its determinants significantly varies in distinct periods. The results reveal that, financial speculation accentuated copper price moves during the last decade. The results support the conclusion that, fundamentals alone cannot fully explain price moves.