Commodity Financialization and Information Transmission
AFA 2016 Annual Meeting
NBER 2015 Commodity Meeting
Rotman School of Management Working Paper No. 2555996
The Wharton School Research Paper
28th Annual Conference on Financial Economics and Accounting
66 Pages Posted: 27 Jan 2015 Last revised: 17 Aug 2021
Date Written: June 1, 2019
Abstract
We provide a model to understand the effects that commodity futures financialization has on various market variables. We distinguish between financial speculators and financial hedgers and study their separate and combined effects on the informativeness of futures prices, the futures price bias, the comovement of futures prices with other markets, and the predictiveness of financial trading. We capture the interactions between commodity futures financialization and the real economy through spot prices and production decisions. A dynamic extension illustrates how key variables change over time in a period of acute financialization in a way that is consistent with observed empirical patterns.
Keywords: Commodity financialization, supply channel, price informativeness, feedback effect
JEL Classification: D82, G14
Suggested Citation: Suggested Citation