An article of “Financialization and Commodity Markets Serial Dependence”, co-written by Prof. Yubo Tao, Assistant Professor of Economics of FSS, was recently accepted on Management Science, a top journal in management. Authors also include Zhi Da, Ke Tang and Liyan Yang.
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 novel causal evidence that exposure to such index trading results in negative daily return autocorrelations among commodities in that index. This is because index trading propagates non-fundamental noises to indexed commodities, giving rise to price overshoots and subsequent reversals. We present direct evidence for such noise propagation using commodity news sentiment data.
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