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Internet, noise trading and commodity prices

Author

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  • Massimo PERI

    ()

  • Daniela VANDONE

    ()

  • Lucia BALDI

    ()

Abstract

We study the effect of an increased noise trading caused by easier access to information on agricultural futures prices. The theoretical framework is the Mixture Distribution Hypothesis (MDH), that posits a joint dependence of return volatility and information. We use two different proxies for the observed component of information flows, which allows to separate the effect of supply and demand of information. We analyse the effect of information demand using the Internet Search Volume from Google Insight. Empirical results support the MDH and highlight that the search of information on internet by noise traders can amplify volatility.

Suggested Citation

  • Massimo PERI & Daniela VANDONE & Lucia BALDI, 2012. "Internet, noise trading and commodity prices," Departmental Working Papers 2012-07, Department of Economics, Management and Quantitative Methods at Universit√† degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2012-07
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    File URL: http://wp.demm.unimi.it/files/wp/2012/DEMM-2012_007wp.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Noise trading; commodity futures prices; information; mixture distribution hypothesis; egarch;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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