Informational Frictions and Commodity Markets
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.
Document Object Identifier (DOI): 10.3386/w18906
Published: MICHAEL SOCKIN & WEI XIONG, 2015. "Informational Frictions and Commodity Markets," The Journal of Finance, vol 70(5), pages 2063-2098.
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