Abstract
There has been a widely participated debate about whether the rather unusual volatilities in the world commodity markets around 2008 could be attributed to ‘overspeculation’. This paper managed to shed some new light on this by measuring the extent to which the capital inflows and outflows influenced the crude oil price, with a series of counterfactual experiments which was made possible in the structural vector autoregression (SVAR) model. By employing a Markov switching VAR (MSVAR) model, this paper took an novel and innocent way to achieve the identification of the SVAR model. Furthermore, this paper also exhibited a practical way to attain a more precise estimation of weekly index investor positions. At eight time points ranging from 2007 to 2009, this paper showed visible impact of investor flows on the oil price.
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