Professor Harrison Hong
Bio sketch:
Harrison Hong is the John Scully ’66 Professor of Economics and Finance at Princeton University, where he teaches courses in finance in the undergraduate, master and PHD programs. Before joining Princeton in 2002, he was on the faculty of the Graduate School of Business at Stanford University. He received his BA in economics and statistics with highest distinction from the University of California at Berkeley in 1992 and his PHD in economics from M.I.T. in 1997. His research has covered such topics as: behavioural finance and stock market efficiency; asset pricing and trading under market imperfections; incentives and biases in decision making; organizational form and performance; and social interaction and markets. He is on the editorial boards of the Journal of Finance and the Journal of Financial Intermediation. He is a Director of the American Finance Association and a research associate at the National Bureau of Economic Research. In 2009, he was awarded the American Finance Association’s Fischer Black Prize, given biennially to the person under 40 who has contributed the most to the theory and practice of finance.
Abstract:
We establish several new findings on the relation between capital flow in commodity markets and asset returns. Capital flowing into commodity markets, as measured by high open-interest growth, predicts high commodity returns and low bond returns. Open-interest growth is a more powerful and robust predictor of commodity returns than other known predictors such as the short rate, the yield spread, the basis, and hedging pressure. Although positively correlated with commodity returns, open interest growth contains information for future asset returns beyond contemporaneous commodity prices. Open-interest growth also predicts changes in inflation and inflation expectations. These findings suggest that open-interest growth contains information about future inflation that gets priced into commodity and bond markets with delay. Our findings are consistent with recent theories of gradual information diffusion and have implications for macroeconomic forecasting models.
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