International Journal of

Financial Studies

Article
Effect of Speculators’ Position Changes on the LME
Futures Market
Jaehwan Park
Commodity Research Center, Public Procurement Service, Daejeon 35208, Korea; [email protected];
Tel.: +82-210-3720-3967




Received: 19 March 2019; Accepted: 12 June 2019; Published: 14 June 2019


Abstract: This paper employs Granger causality tests to analyze the role of speculators using weekly
COTR (commitment of traders reports) data covering the period of August 2014 to July 2017. The paper
presents statistically significant evidence that the position changes of speculators, such as hedge
funds and CTAs (commodity trading advisors), unidirectionally Granger-cause the prices of base
metals, such as aluminum, copper, and zinc. This finding is a result of causality going from the levels
of net futures positions of money managers to futures price changes on the London Metal Exchange
(LME). However, producers’ and swap dealers’ speculative roles in price-formation are rejected in
Granger causality tests. This paper presents clear results with important market implications.

Keywords: COTR; non-commercial traders; money managers; Granger causality test

JEL Classification: C3; G1

1. Introduction
Traditional discussion of commodity futures markets is in terms of hedgers and speculators
(Gilbert 2010). The commodity futures markets have become important as investors regard commodity
futures as an alternative asset class, comparable with equity and bonds (Tang and Xiong 2012).
The coincidental and rapid rise in the prices of commodities and the increased number of financial
investors in commodities futures markets between 2000 and 2008 have led certain observers to question
whether speculators have distorted commodity prices. The key argument is whether the financialization
(Cheng and Xiong 2014) of commodities markets distorts commodities prices1 . Substantial attention
from legislators (US Senate Permanent Subcommittee on Investigations USPSI2 ), academia, and news
media have intensified the debate. Buyuksahin et al. (2009) reported that the rise in investments by
non-commercial traders contributed to concurrent oil price increases in energy. Gilbert (2010) observed
a statistically significant relationship between index fund trading and food prices in agriculture.
Alternatively, Sanders et al. (2010) observed that long-only index funds in agricultural futures
markets might benefit from short hedging pressure but there was no strong implication that speculators
drove agricultural commodities prices. Irwin and Sanders (2012) observed little evidence that

1 This is called the “Masters Hypothesis” by Irwin and Sanders (2012), in which long-only index investment was a major
driver of the 2007–2008 spikes in commodities futures. Masters, a hedge fund manager, argued that massive buy-side
‘demand’ from index funds created a bubble in commodities prices in U.S. congressional hearings. He insisted that the
recent speculators’ behavior differed from that of traditional speculators. First, new investors took positions across the entire
range of commodity futures, not in specific futures as traditional speculators did. Second, new investors were almost only
long, whereas traditional speculators might equally be long or short.
2 The USPSI (US Senate Permanent Subcommittee on Investigations USPSI) concluded that there was significant evidence
from the wheat futures market that one of the major reasons for unusual market price spikes is the high level of speculation
by commodity index traders.

Int. J. Financial Stud. 2019, 7, 32; doi:10.3390/ijfs7020032 www.mdpi.com/journal/ijfs

Int. J. Financial Stud. 2019, 7, 32 2 of 9

speculators in commodities markets caused market prices to spike and determined no statistical causal
links between returns and the positions of large energy exchange-traded index funds.
Most previous studies in this research area employed COT (commitments of traders) data, which
are reported by the CFTC (commodity futures trading commission). The COT provides market data
and position information on market participants who have positions in a specific futures market. Unlike
energy and agricultural commodities, base metals are excluded from the COT data. This exclusion is
the main reason why no previous study of base metals has been conducted in this study area.
The purpose of this paper is to examine data from the COTR (commitment of traders reports) to
test the relationship between LME (London metal exchange)3 futures prices and the trading positions
of various types of investors. This study conducts Granger causality tests and identifies a statistically
significant link between money managers’ position changes and subsequent returns in the LME market
using weekly data from August 2014 to July 2017. Notice that the LME provides the market positioning
data on a weekly basis beginning in August 2014. The empirical results suggest that the position
changes of speculators have an unidirectionally strong Granger-cause on the LME futures prices.
However, there is no evidence that producers’ and swap dealers’ position changes have a Granger-cause
on the LME futures prices. There is statistically significant evidence: first, the evidence of a link
between money managers’ net position changes for aluminum, copper, and zinc prices, and second,
the evidence of a link between money managers’ net position changes to volatilities for only copper
and zinc. Within this empirical result, it was found that copper and zinc face a somewhat higher risk
among the LME’s major six base metals from the speculators’ trading pattern.
The rest of the paper is organized as follows. Section 2 reviews the previous literature. In Section 3,
the model is presented and a discussion is provided regarding how the Granger-causality hypothesis
was set. In Section 4, the data set is illustrated and the main results are presented. Section 5 details
the conclusions.

2. Literature Review
The role of speculators in commodity markets has been an issue of considerable interest and
controversy (Brunetti et al. 2015). There has been no consensus about the impact of speculators on
commodity futures markets. Singleton (2014), Buyuksahin and Robe (2009), Buyuksahin et al. (2009),
and Gilbert (2010) found that speculators’ impacts had a statistically significant effect on commodity
futures prices, while Buyuksahin and Harris (2011), Sanders et al. (2010), and Irwin and Sanders (2012)
found opposing results.
Singleton (2014) found that the largest impacts on futures prices were from intermediate-term
growth rates of index positions and managed-money spread positions in oil futures markets. He also
found that hedge fund trading in spread positions in futures influenced the shape of the term structure
of oil futures prices. Buyuksahin and Robe (2009) showed that energy–equity co-movements increase
amid greater participation in energy markets by, for example, hedge funds, but the impact of hedge
fund activity is subdued during periods of financial turmoil. Buyuksahin et al. (2009) provided
evidence for causal connections between non-commercial traders and oil prices. They found that the
rise in participation by non-commercial traders during the preceding eight years (2000–2008) increased
concurrent oil prices. Gilbert (2010) found that massive index-based investments in agricultural futures
markets were seen as a major transmission channel through which macroeconomic and monetary
factors generated the rapid food price rises between 2007 and 2008 using Granger causality analysis.
On the other hand, Buyuksahin and Harris (2011) highlighted that the role of speculators was the
subject of heated debate, as oil futures price peaked at $147/barrel in July 2008. They employed COT

3 The LME is the world’s largest futures exchange in the metal industry, including base metals and spot (cash), futures (3M),
and various option contracts. Park and Lim (2018) provided a good discussion of the LME. They found that the LME was
an inefficient market.
Int. J. Financial Stud. 2019, 7, 32 3 of 9

data from US CFTC to test the relationship between oil prices and the trading positions of various types
of traders in the oil futures market. They found little evidence that the speculators’ position changes
Granger-cause oil price changes. Irwin and Sanders (2012) found no statistically significant causal
links between daily returns or volatility in the crude oil, and even natural gas futures markets and the
positions for two large sample energy exchange-traded index funds using a Granger causality test.
Brunetti and Buyuksahin (2009) did not find a statistical link between swap dealers’ positions (a proxy
for commodity index fund positions) and returns or volatility in the crude oil, natural gas, and corn
futures markets using a Granger causality test. Sanders et al. (2010) showed that traditional speculation
in agricultural futures markets using COT data did not influence returns. However, the long-only
index funds might be beneficial, thanks to investments by speculators.
Park (2018) found that the evidence of volatility transmission between oil and base metals was
somewhat strong, with a 1% significant level. He argued that considering this result, the behavior
of volatility in oil and LME futures prices applied to hedge decisions across the commodity market
was useful. Park and Lim (2018) reported that the LME market was not efficient due to the false
premise that the financialization of commodities had been growing. This result implied that the LME
futures market could generate somewhat possible excess returns, which could attract speculators
such as hedge funds and CTAs (commodity trading advisors). Park (2019) argued that the canceled
warrants (CWs) in the LME market were key indicators to explain the financialization effect in the
market price directly. He pointed out that the CWs variable was crucial because it encompassed two
factors—fundamentals and non-fundamentals. He found that the rise in CWs increased the LME metal
prices, including aluminum, zinc, tin, and nickel. He found that the positive impact of the CWs on
metal returns was transitory.
Arouri et al. (2011) exhibited the speculative efficiency of the aluminum contract traded in the LME
using cointegration approaches. They found that futures aluminum prices were found to be cointegrated
with spot prices and they were the biased estimators of future spot prices. In a somewhat different
aspect, Figuerola-Ferretti and Gilbert (2008) reported the volatilities characteristics of aluminum and
copper in LME. They found that aluminum and copper volatilities follow statistically long memory
process, which were caused by speculative traders.

3. Methodology
Most previous articles in this study area have employed Granger causality tests to examine the
effect of non-commercial traders on specific commodity market prices (Buyuksahin et al. 2009; Brunetti
and Buyuksahin 2009; Gilbert 2010; Buyuksahin and Harris 2011; Irwin and Sanders 2012). The Granger
causality test is based on a bivariate VAR (vector autoregressions) representation of stationary time
series {Xt } and {Yt }:
Xt = A(L)Xt + B(L)Yt + εX,t (1)

Yt = C(L)Xt + D(L)Yt + εY,t (2)

where A(L), B(L), C(L), and D(L) are lag polynomials. The null hypothesis is that “lagged Y does not
Granger-cause X”, while the alternative hypothesis is that “lagged Y causes X”. The null hypothesis will
be rejected if the coefficients on the lagged Y’s are jointly significantly different from zero. Specification
issues arise in relation to the choice of lag length because test results are sensitive to lag selection.
To determine the optimal lag to be used in the VAR estimation, this paper employs the AIC (akaike
information criterion) and SIC (Schwarz information criterion).

4. Empirical Results

4.1. Data
The main objective of this paper is to identify whether participation by some types of traders
explains the extent to which the market moves as a consequence of investment money flows. This paper
Int. J. Financial Stud. 2019, 7, 32 4 of 9

uses weekly COTR4 data from August 2014 to July 2017, which includes the trading positions
of various types of investors, such as a money manager (mm), broker-dealer/index trader (bd),
producer/merchant/user (pm), and other reportable parameters. Money managers are engaged in
managing LME contracts on behalf of clients, while broker–dealer/index traders are engaged in
transactions and use the LME to manage or hedge the risk associated with those transactions (see
details in the LME disaggregated reports). These data are used to compute net futures positions and
evaluate percent changes against the previous week. For example, the variable mm_al is the weekly
percent change in net position changes in the aluminum markettrackingcopper (cu), aluminum (al),
lead (pb), zinc (zn), tin (sn), and nickel (ni). The benchmark futures price for base metals is that of
a contract expiring after three months (3M), as obtained from Reuters over the same the period and
computed using Thursday–Thursday5 log returns to 3M futures prices. For example, the variable r_al
denotes the weekly log returns in the aluminum market.

4.2. Empirical Results

Granger causality tests require variables to be stationary. To test stationarity, this paper employs
the ADF (augmented dickey fuller) unit root test. Table 1 reports the ADF test results6 . The table
confirms that all variables are I (0), that is, stationary data. Therefore, the VARs (vector autoregressions)
were ran in levels, rather than first differencing. The differencing non-stationary variables usually
render them stationary.

Table 1. Unit root test results.

Metals Variables Statistics Metals Variables Statistics

r_al −14.09 r_cu −12.60
mm_al −13.18 mm_cu −12.86
Aluminum Copper
bd_al −14.23 bd_cu −12.57
pm_al −9.935 pm_cu −12.15
r_zn −13.32 r_pb −11.61
mm_zn −9.293 mm_pb −11.92
Zinc Lead
bd_zn −12.24 bd_pb −9.940
pm_zn −12.07 pm_pb −11.74
r_sn −13.55 r_ni −14.28
mm_sn −12.69 mm_ni −13.10
Tin Nickel
bd_sn −12.33 bd_ni −13.13
pm_sn −13.02 pm_ni −12.41
Notes: There are 153 observations. (August 2014–July 2016; weekly data). Natural logarithms are used to calculate
returns (r_al, r_cu, r_zn, r_pb, r_sn, and r_ni). The commitment of traders reports’ (COTR’s) position data are percent
changes from the previous week (for example, mm_al: aluminum position changes of money managers, bd_al:
aluminum position changes of broker-dealers, and pm_al: aluminum position changes of producers. Most previous
studies utilized this method). The one percent critical value is −3.493. The unit root tests show that all variables are
I (0).

This paper analyzes Granger causality between weekly metal price changes and net position
changes by including money managers, swap dealers, and producer groups, respectively. An initial
hypothesis of Granger causality between LME metal price changes and position changes of only
a money manager, rather than a broker–dealer/index trader or producer/merchant/user like most
previous studies (Buyuksahin et al. 2009; Brunetti and Buyuksahin 2009; Gilbert 2010; Buyuksahin and

4 Six major base metals reports are published each Tuesday, one for each business day of the previous week. This data is
obtained through the Bloomberg.
5 Thursday is the day the LME’s COTR is announced.
6 Other unit root tests such as the Phillips–Perron (PP) test and Kwiatkowski–Phillips–Schmidt–Shin (KPSS) test have
similar results.
Int. J. Financial Stud. 2019, 7, 32 5 of 9

Harris 2011), was developed. A second hypothesis of Granger causality between LME metal price
volatilities and position changes of money managers within the Irwin and Sanders (2012) framework
was suggested. The idea is clear: if the investments of money managers drive metal prices, then price
volatility may increase somewhat significantly. Hence, the hypotheses developed were as follows:

Hypothesis 1. The position changes of only a money manager are associated with LME metal price changes.

Hypothesis 2. The position changes of only a money manager are associated with LME metal price volatilities.

Pairs of variables were considered; the first member of each pair is an LME metal price movement,
and the second is an investment flow of a specific group. As shown in Table 2, there are statistically
significant unidirectional Granger causalities from metal price changes to net position changes of money
managers. This finding is proof of positive feedback trading among money managers. Only aluminum,
copper, and zinc exhibit bidirectional Granger causalities between metal price changes and net position
changes of money managers. One of the probable reasons for this is liquidity, which means higher
liquidity provides a better investment environment for money managers. Notice that the trading
volumes of aluminum, copper, and zinc are relatively higher compared to other base metals in LME
(see details in Park and Lim (2018)). This finding is strong and in line with the first hypothesis. The
growth in hedge funds and commodity funds, such as major CTAs in the LME, has driven prices to
be significantly higher. In addition, Park and Lim (2018) found that the LME market was inefficient,
which could attract speculators. Buyuksahin et al. (2009) obtained a similar result in crude oil futures
markets using Granger causality tests. Figure 1 depicts the trend of aluminum’s net position for money
managers and the LME aluminum price trend, which seem to be highly correlated with each other.
Figures for other base metal prices and net positions of money managers are similar.

Table 2. Granger causality tests: First hypothesis.

Aluminum Lead
Causality Causality
Lags p-Value Lags p-Value
Direction Direction
mm_al → r_al 3 0.045 ** mm_pb → r_pb 2 0.392
r_al → mm_al 3 0.000 *** r_pb → mm_pb 2 0.000 ***
bd_al → r_al 3 0.074 * bd_pb → r_pb 3 0.826
r_al → bd_al 3 0.697 r_pb → bd_pb 3 0.665
pm_al → r_al 3 0.700 pm_pb → r_pb 3 0.167
r_al → pm_al 3 0.000 *** r_pb → pm_pb 3 0.245
Copper Tin
Causality Causality
Lags p-Value Lags p-Value
Direction Direction
mm_cu → r_cu 3 0.003 *** mm_sn → r_sn 2 0.321
r_cu → mm_cu 3 0.006 *** r_sn → mm_sn 2 0.000 ***
bd_cu → r_cu 2 0.669 bd_sn → r_sn 2 0.032 **
r_cu → bd_cu 2 0.202 r_sn → bd_sn 2 0.467
pm_cu → r_cu 2 0.086 * pm_sn → r_sn 2 0.315
r_cu → pm_cu 2 0.450 r_sn → pm_sn 2 0.416
Zinc Nickel
Causality Causality
Lags p-Value Lags p-Value
Direction Direction
mm_zn → r_zn 2 0.048 ** mm_ni → r_ni 2 0.103
r_zn → mm_zn 2 0.042 ** r_ni → mm_ni 2 0.007 ***
Int. J. Financial Stud. 2019, 7, 32 6 of 9

Int. J. Financial Stud. 2019, 1, x FOR PEER REVIEW 6 of 9

Table 2. Cont.
bd_zn → r_zn 2 0.803 bd_ni → r_ni 2 0.404
r_zn → bd_zn
bd_zn → r_zn 2 2 0.803
0.102 r_ni →→
bd_ni r_ni
bd_ni 2 2 0.411 0.404
r_zn → bd_zn 2
pm_zn → r_zn 2 0.102
0.677 r_ni →→bd_ni
pm_ni r_ni 2 2 0.444 0.411
pm_zn → r_zn 2
r_zn → pm_zn 2 0.677
0.476 pm_ni
r_ni → r_ni
→ pm_ni 2 2 0.579 0.444
r_zn → pm_zn 2 0.476 r_ni → pm_ni 2 0.579
Notes: The sample consists of 153 observations. Table 2 presents the Granger causality test results for
Notes:
metalThe sample
prices andconsists of 153 changes.
net position observations.
The Table 2 presents
reported numbersthe represent
Granger causality test***,
p-values. results for* metal
** and prices
indicate
and net position changes. The reported numbers represent p-values. ***, ** and * indicate the rejection of Granger
the rejection
non-causality at of
1%,Granger
5%, andnon-causality at 1%, 5%, and 10% level of significance.
10% level of significance.

2300
220000

1800
120000

1300
20000

mm_al
bd_al 800
-80000
pm_al
price_al(RHS)
-180000 300

-280000 -200
2014/8/1 2015/8/1 2016/8/1
Figure 1. Plot of mm_al and price_al. Notes: The solid line is the price of aluminum on the LME over
theFigure 1. August
period Plot of mm_al
2014 toand price_al.
July Notes:the
2017, while Thebold
soliddotted
line is line
the price of aluminum
is aluminum’s neton the LME
position overfor
trend
the period
a money August The
manager. 2014thin
to July 2017,line
dotted while
is the bold dotted
aluminum’s line
net is aluminum’s
position trend fornetaposition trend for a
broker–dealer/index
money
trader andmanager.
the doubleTheline
thin dotted line is
is aluminum’s netaluminum’s net for
position trend position trend for a broker–dealer/
a producer/merchant reveal with a
somewhat different shape and indifferent from the price of aluminum. producer/merchant reveal
index trader and the double line is aluminum’s net position trend for a
with a somewhat different shape and indifferent from the price of aluminum.
Park and Lim (2018) evaluated the LME. First, the LME addresses daily rolling three-month
futuresPark and Lim
contracts (2018)
that are evaluated
different fromthethoseLME. First,commodity
in other the LME addresses
markets, daily
whichrolling
are basedthree-month
on monthly
futures contracts that are different from those in other commodity markets,
prompt dates. Second, the LME is traded electronically but is also traded through outcry, which which are based isonthe
monthly prompt dates. Second, the LME is traded electronically but is also traded through outcry,
oldest way of trading on the exchange. Park and Lim (2018) reported that these characteristics made
which is the oldest way of trading on the exchange. Park and Lim (2018) reported that these
markets inefficient and attracted speculators’ investment money flows, which is in line with the result
characteristics made markets inefficient and attracted speculators’ investment money flows, which is
of this paper. Park (2019) concluded that the role of canceled warrants in the LME market intensifies
in line with the result of this paper. Park (2019) concluded that the role of canceled warrants in the
the aluminum, zinc, tin, and nickel spot prices’ direction. He argued that this evidence showed the
LME market intensifies the aluminum, zinc, tin, and nickel spot prices’ direction. He argued that this
financialization of the LME by speculative investors.
evidence showed the financialization of the LME by speculative investors.
However,
However, thethetests
testsfor
forproducer
producerandand index investors,similar
index investors, similartotothose
thoseemployed
employed forfor
swapswap dealers,
dealers,
reject
reject Granger causality. For the producer, the objective of investing in the LME futures market is is
Granger causality. For the producer, the objective of investing in the LME futures market
purely
purely hedging
hedgingagainst
againstpricepriceuncertainty.
uncertainty. Figure
Figure 11 explains
explainsthis
thisresult
resultclearly.
clearly.For For
thethe swap
swap dealer
dealer
front,
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Buyuksahinetetal. al.(2009)
(2009) note
note that
that they usuallytake
they usually takepositions
positionsusing
usingcommodity
commodity index
index funds,
funds,
which deliver returns based on
which deliver returns based on the indexthe index and follow the herding mentality of unsophisticated
follow the herding mentality of unsophisticated traders, traders,
unlike
unlike active
activecommodity
commodityfunds. funds. Therefore,
Therefore, the the results
resultsfor
forproducers
producersand andindex
index investors
investors differ
differ fromfrom
those
thoseforfor
money
money managers
managers due to their
due own
to their ownmandate
mandatecharacteristics.
characteristics.Indeed,
Indeed,thethe
figures
figuresfor for
basebase
metal
metal
prices prices
and net and net positions
positions of producers
of producers and indexand investors
index investors
revealreveal a somewhat
a somewhat different
different shape.shape.
Table 3 examines the second hypothesis of Granger causality between metal
Table 3 examines the second hypothesis of Granger causality between metal price volatilities and price volatilities
netand net position
position changes changes
of moneyof money managers
managers withinwithin the research
the research framework
framework of Irwin
of Irwin and Sanders
and Sanders (2012).
(2012).
Notice Notice
that Irwin that
and Irwin and Sanders
Sanders (2012)
(2012) used used realized
realized volatility
volatility and implied
and implied volatility
volatility within within a
a similar
Int. J. Financial Stud. 2019, 7, 32 7 of 9

empirical framework. The LME does not publish intra-day data or tick data. Hence, Figuerola-Ferretti
and Gilbert (2008) argue that it is not possible to compute daily realized volatility measures for the
LME market. This paper employs implied volatilities ATM (at-the-money) similarly to the work of
Irwin and Sanders (2012) from Reuters as a measure of volatility. There is evidence of a link between
money managers’ net position changes and implied volatility in Table 3. Granger causality between
the aluminum price volatility and position changes of money managers has been rejected. However,
this causality has not been rejected for copper and zinc. It is found that copper and zinc are the only
base metals that satisfy both hypotheses. In particular, a significant (p-value = 0.04) is found between
money managers’ net position changes and implied volatility in zinc, which implies a somewhat
higher risk in zinc due to money managers’ speculative investment changes. Irwin and Holt (2004)
find a small positive relationship between the hedge fund trading volume and volatility in thirteen
different futures markets.

Table 3. Granger causality tests: Second hypothesis.

Causality Direction Lags p-Value

Aluminum
mm_al → iv_al 2 0.166
iv_al → mm_al 2 0.379
Copper
mm_cu → iv_cu 2 0.084 *
iv_cu → mm_cu 2 0.161
Zinc
mm_zn → iv_zn 3 0.048 **
iv_zn → mm_zn 3 0.521
Notes: The sample consists of 153 observations. Table 3 presents the Granger causality test results for net position
changes by money managers and implied volatilities. The volatilities variables (iv_al, iv_cu and iv_zn) follow I(0)
processes. The reported numbers represent p-values. ** and * indicate the rejection of Granger non-causality at 5%
and 10% levels of significance.

Given this result, the question arises of why zinc has the most robust result. As Otto (2011)
argued, the possible reason for this may be liquidity. Zinc had the third largest liquidity in terms
of trading volume in the LME market. Unlike other base metals, zinc has a dominant production
company, Glencore. Its market share of the total global production is more than 50% (Park and Lim
2018). These reasons provide a possible answer to the above question.
Testing the first (Table 2) and second (Table 3) hypotheses, this paper concludes that a rise in
investment flows of money managers increases aluminum, copper, and zinc prices, but increases price
volatility for only copper and zinc. However, there is no evidence that producers’ and swap deals’
position changes have a Granger-cause on the LME futures prices.

5. Summary and Conclusions

Utilizing weekly trader positions, Granger causality tests were examined to determine the
relationship between price changes and net position changes of various traders in the LME futures
market. This paper establishes two hypotheses concerning whether money managers’ investment
flows impact base metal prices and implied volatility. This analysis identifies categories of traders
to assess how speculators relate to price changes and volatility. Using three years of weekly data,
this paper observes that money managers’ speculative investment changes influence LME metal prices
for aluminum, copper, and zinc, exhibiting unidirectional Granger causality. Price changes lead the
net position changes of speculators for all six base metals, which imply procyclical trading. However,
Int. J. Financial Stud. 2019, 7, 32 8 of 9

there is no evidence that producers’ and swap deals’ position changes have a Granger-cause on the
LME futures prices. This is a somewhat strong result.
For the second hypothesis, there is a significant Granger causality relationship between net
position changes of speculators and implied volatility of the prices of copper and zinc. However,
Granger causality is rejected for aluminum price volatility and position changes of money managers.
The failure to reject Granger causality has important implications for the pricing of LME futures.
Even though fundamentals remain the major driver of base metals prices over the long-term, commodity
fund activity tends to raise price volatility in the short-term. Over the last decade, and even until now,
growing activity in commodities futures markets by major financial institutions, such as hedge funds,
commodity index funds, and pension funds, has been witnessed.

Funding: This article received no external funding.

Acknowledgments: Hyeon Sook Kim, my colleague, provided the data set and gave useful comments. The author
would like to thank three anonymous referees for their valuable comments and suggestions which contributed to
the quality of this paper.
Conflicts of Interest: The author declares no conflicts of interest. The author alone is responsible for the context
and writing of the paper.

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