While it will be no surprise to any ZeroHedge reader, academic research from ETH Zurich [11] shows that not only are "commodity markets becoming very financialized and computerized... and more susceptible to minor shocks," but "at least 60-70% of price changes are now due to self-generated activities rather than novel information." In other words, only about a third of commodity price moves are caused by real fundamental news now (as opposed to 75% pre-HFT).
Using a novel "index of short-term endogeneity (or reflexivity) derived by calibrating the Hawkes self-excited conditional Poisson models" - we thought you'd like that - Didier Sornette (infamous bubble spotter and mathematician) and his team create a measure of endogeneity (or non-news related price movement) across several assets from S&P 500 (below) to Brent Crude (Europe), WTI (US), Soybean (US), Sugar #11 (US), Corn (US), Wheat (US) and Sugar (Europe) - all indicate significant surges post 2006 in non-news related trading activity (HFT noise)...
As Reuters reports [12], they sum up:
"In our view, this evolution partly reflects the development of algorithmic trading and of high frequency trading in particular."
S&P 500 e-mini futures are tested here - showing that almost 80% of the activeity (lower pane) is unrelated to fundamental news.
[13]
Full paper below...
Sornette_HFT [14]