Financialization and Commodity Markets Serial Dependence

Zhi Da (), Ke Tang, Yubo Tao and Liyan Yang ()
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Zhi Da: Department of Finance, Mendoza College of Business, University of Notre Dame, Notre Dame, Indiana 46556
Liyan Yang: Department of Finance, Joseph L. Rotman School of Management, University of Toronto, Toronto, Ontario M5S3E6, Canada; Guanghua School of Management, Peking University, Peking 100871, China

Management Science, 2024, vol. 70, issue 4, 2122-2143

Abstract: Recent financialization in commodity markets makes it easier for institutional investors to trade a portfolio of commodities via various commodity-indexed products. We present several pieces of novel causal evidence that daily exposure to such index trading results in price overshoots and reversals, as reflected in negative daily return autocorrelations, only among commodities in that index. This is because index trading propagates nonfundamental noise to all indexed commodities. We present direct evidence for such noise propagation using commodity news sentiment data.

Keywords: financialization; return autocorrelations; index trading; news sentiment; ETF arbitrage; price discovery (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:4:p:2122-2143

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