The sharp peak-flat trough pattern and critical speculation

TL;DR

This paper identifies a characteristic peak-flat trough pattern in commodity prices, attributing it to endogenous market organization and herding, which challenges existing models and suggests the need for nonlinear effects.

Contribution

It provides empirical evidence of a specific price pattern and links it to market herding, proposing a new perspective on modeling commodity price dynamics.

Findings

Identifies a sharp peak-flat trough pattern in commodity prices

Links pattern to endogenous market organization and herding

Suggests nonlinear effects are necessary in models

Abstract

We find empirically a characteristic sharp peak-flat trough pattern in a large set of commodity prices. We argue that the sharp peak structure reflects an endogenous inter-market organization, and that peaks may be seen as local ``singularities'' resulting from imitation and herding. These findings impose a novel stringent constraint on the construction of models. Intermittent amplification is not sufficient and nonlinear effects seem necessary to account for the observations.