Commodity Financialization and Information Transmission

64 Pages Posted: 27 Jan 2015 Last revised: 3 May 2021

See all articles by Itay Goldstein

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department

Liyan Yang

University of Toronto - Rotman School of Management

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

Goldstein, Itay and Yang, Liyan, Commodity Financialization and Information Transmission (June 1, 2019). 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, Available at SSRN: https://ssrn.com/abstract=2555996 or http://dx.doi.org/10.2139/ssrn.2555996

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-746-0499 (Phone)

Liyan Yang (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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