Commodity Financialization and Information Transmission

59 Pages Posted: 27 Jan 2015 Last revised: 5 Jun 2019

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 2019

Abstract

We study how commodity financialization affects information transmission in a commodity futures market. The trading of financial traders injects both information and noise into the futures price. In consequence, price informativeness in the futures market first increases and then decreases with commodity financialization. When the price-informativeness effect is negative, commodity financialization can aggravate the futures price bias. Financialization generally improves market liquidity in the futures market and strengthens the commodity-equity market comovement. Operating profits and producer welfare can move in opposite directions in response to commodity financialization. Our analysis provides important guidance for interpreting related empirical and policy studies.cal and policy studies.

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 2019). AFA 2016 Annual 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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