Market Mayhem: Commodity Prices Mostly Self-Inflicted

Researchers from the University of Nebraska-Lincoln have made an unexpected discovery in their study of commodity markets. By examining decades of daily futures prices for a range of agricultural commodities, including corn, soybeans, wheat, coffee, sugar, orange juice, hogs and cattle, they found that up to 80% of price volatility may be generated by the internal dynamics of the market itself.

According to Fabio Mattos, an associate professor in UNL's Department of Agricultural Economics, this challenges the traditional economic view that price volatility is primarily a reaction to outside events affecting supply and demand. He compared it to traffic: one driver hitting the brakes for an unexpected reason can prompt others to brake, creating a larger effect.

The researchers used nonlinear analytical methods to identify patterns within price movements that traditional statistical techniques may not capture. They found evidence of internal dynamics driving price swings, even in the absence of major outside shocks.