Informational Frictions and Commodity Markets

52 Pages Posted: 22 Mar 2013 Last revised: 28 Feb 2021

See all articles by Michael Sockin

Michael Sockin

University of Texas at Austin - Red McCombs School of Business

Wei Xiong

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 2013

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

Sockin, Michael and Xiong, Wei, Informational Frictions and Commodity Markets (March 2013). NBER Working Paper No. w18906, Available at SSRN: https://ssrn.com/abstract=2237819

Michael Sockin (Contact Author)

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

Wei Xiong

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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