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CommoditiesMarkets, Performance, and Strategies$
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H. Kent Baker, Greg Filbeck, and Jeffrey H. Harris

Print publication date: 2018

Print ISBN-13: 9780190656010

Published to Oxford Scholarship Online: March 2018

DOI: 10.1093/oso/9780190656010.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 16 October 2021

Behavioral Aspects of Commodity Markets

Behavioral Aspects of Commodity Markets

(p.56) 4 Behavioral Aspects of Commodity Markets

John R. Nofsinger

Oxford University Press

Are behavioral biases prevalent in commodities and futures markets? Although retail equity investors display many psychological biases, investors who are more sophisticated exhibit fewer biases. The market makers, traders (locals), speculators, hedgers, and institutions of the commodities and futures markets tend to be professional participants, and thus less prone to behavioral biases. Nevertheless, the fast-paced action of these markets is an environment that fosters behavioral errors. This chapter reviews the literature on the pervasiveness of prospect theory behavior and other biases in these markets. Strong evidence indicates that market participants exhibit loss aversion, the impact of reference points, the disposition effect, and overconfidence. They also engage in positive feedback trading and momentum investing. Lastly, the chapter reviews risk-taking and behavioral biases by the type of market participant, particularly focusing on market makers, floor traders, clearing members, and the public.

Keywords:   psychological bias, loss aversion, reference point, disposition effect, overconfidence, positive feedback trading, momentum investing

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