2016/07/26 by Maria Chiara D’Errico, d'Errico, Maria, Alessandro Laio +4
Agricultural and Biological Sciences · Economics, Econometrics and Finance · #Agricultural risk and resilience #Banking stability, regulation, efficiency #Economic theories and models #FOS: Economics and business #General Finance (q-fin.GN) #Housing, Finance, and Neoliberalism #Market Dynamics and Volatility #Mathematical Finance (q-fin.MF)
paper · pdf · doi:10.48550/arxiv.1607.07582
openalex publication_date 2016/07/26 · openalex created_date 2022/10/01 · openalex updated_date 2026/07/28
We propose a stylized model of production and exchange in which long-term\ninvestors set their production decision over a horizon \τ , the "time to\nproduce", and are liquidity constrained, while financial investors trade over a\nmuch shorter horizon \δ (<< \τ ) and are therefore more duly informed\non the exogenous shocks affecting the production output. The equilibrium\nsolution proves that: (i) long-term producers modify their production decisions\nto anticipate the impact of short-term investors allocations on prices; (ii)\nshort-term investments return a positive expected profit commensurate to the\ninformational advantage. While the presence of financial investors improves the\nefficiency of risk allocation in the short-term and reduces price volatility,\nthe model shows that the aggregate effect of commodity market financialization\nresults in rising the volatility of both farms' default risk and production\noutput.\n