Does a Better Price Informativeness Enhance the Functioning of the Commodity Markets?

Our research question focuses on how more informatives prices affect operators. Above all, I wonder who are the winners and the losers of the lower risk generated by a higher price informativeness. I study a two-period model with a spot market and a futures market for a commodity. Hedgers are active on both markets and speculators trade only on the futures market. Hedgers speculate as well on futures contracts. Information is heterogeneous. Every group is endowed with a common signal about the net demand at maturity. First, I show the necessity to take in account the forward curve and the prices of the output in the estimation of the risk premium because information can modify the structural relationship. Second, I show how more informative prices increase the elasticity of the hedging pressure to the risk premium, exactly like when the weight of speculators increases. Last, I shed new light on the conditions which make more precise information harmful for every agent. In this situation, everyone loses because of a decreasing payoff coming from speculation. This last effect is known as the «Hirshleifer effect»