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Informational Frictions and Commodity Markets
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Informational Frictions and Commodity Markets

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  • Michael Sockin
  • Wei Xiong

Abstract

This paper develops a model to analyze information aggregation in commodity markets. Through centralized trading, commodity prices aggregate dispersed information about the strength of the global economy among goods producers whose production has complementarity, and serve as price signals to guide producers' production decisions and commodity demand. Our analysis highlights important feedback effects of informational noise originating from supply shocks and futures market trading on commodity demand and spot prices, which are ignored by existing empirical studies and policy discussions.

Suggested Citation

  • Michael Sockin & Wei Xiong, 2013. "Informational Frictions and Commodity Markets," NBER Working Papers 18906, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:18906
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    Cited by:

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    2. James D. Hamilton & Jing Cynthia Wu, 2015. "Effects Of Index‐Fund Investing On Commodity Futures Prices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(1), pages 187-205, February.
    3. Dunbar, Kwamie & Jiang, Jing, 2020. "What do movements in financial traders’ net long positions reveal about aggregate stock returns?," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).

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    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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