WEST PALM BEACH, FL (www.hedgeco.net) – A new report compiled by the New York Mercantile Exchange (Nymex) has shown that hedge funds trading activities were not responsible for the price surges andvolatility seen in the gas and oil futures markets during the first eight months of 2004. The reports say, �Hedge fund activities represented a modest portion of volume and open interest in the gasand oil futures markets during the first eight months of 2004 and actually appeared to decrease price volatility rather than cause it or increase it.�
Some large industrial companies and market analysts have charged that such volatility in the gas and oil futures markets last year resulted from hedge fund speculative trading. The Nymex study said, �Hedge funds represented only about 9.05% of natural gas futures trading volume in the first eight months of 2004 and 20.4% of gas futures open interest.� Nymex further stated that, Its own benchmark trading, hedge fund activity constituted only 2.69% of trading volume and 13.4% of open interest.�
The new report also stated that actual increases in hedge fund trading seem to occur at intervals of decreasing price volatility. Exchange President James E. Newsome said in a statement, �The findings of the study are consistent with our belief that hedge funds do not negatively impact our markets. Adding, �They generally hold positions significantly longer than other market participants, which supports the conclusion that hedge funds are a nondisruptive source of liquidity to the market.�
Such conclusions show once again that hedge funds are often criticized when things go wrong in the markets, but what often happens is that such criticisms are not grounded in facts nor supported by scientifically based analysis. The Nymex study concluded that, �It appears that hedge funds have been unfairly maligned by certain quarters who are seeking simple answers to the problem of substantial price volatility in energy markets, simple answers that are not supported by the available evidence.”
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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