Evaluating the factors that impact the returns on agricultural and other commodity futures contracts: The influence of financial speculation

This study examines the impact of financial speculation on the returns and volatility of agricultural and other commodity futures before and after the COVID-19 pandemic, contributing to the debate on whether speculative trading amplifies or mitigates market instability in increasingly financialized commodity markets (Alaminos et al., 2024; Chiu & Chou, 2022). Using weekly data and applying Granger non-causality tests together with generalised autoregressive conditional heteroskedasticity (GARCH) and threshold generalised autoregressive conditional heteroskedasticity (TGARCH) models, the analysis shows that commodity returns either lead speculative activity or exhibit no significant causal relationship, indicating that speculation does not drive price dynamics. Speculation affects return volatility only in crude oil and gold markets, where the effect is stabilizing, while agricultural commodities show no statistically significant volatility response. Macroeconomic variables, particularly the Goldman Sachs Commodity Index (GSCI) index, strongly shape returns across all commodities, and volatility increased notably during the post-2020 period. Overall, the findings suggest that commodity price behaviour is primarily driven by fundamental and macroeconomic conditions rather than speculative pressures, and that speculation does not amplify volatility in agricultural markets even during periods of heightened global uncertainty.