Title: Essays on information in emerging financial markets
Description: This thesis consists of three essays on information in a new market for commodity futures in India. The National Commodity and Derivatives Exchange launched in 2003 and subsequently became the third largest agricultural futures market globally. The first essay documents the existence and then disappearance of an asset-pricing anomaly, and relates the disappearance to trading by investors. Using a complete record of transactions on the exchange, I reconstruct the daily positions of the universe of participants and find three main results. First, momentum strategies using prices from the previous two weeks earn high returns at the outset of the exchange, and these returns steadily decline over a four-year period. Second, large traders also earn returns that are high at the outset and then decrease, and a considerable fraction of their returns is attributable to momentum. Third, the decline in momentum coincides with a higher rate of market exit by small and medium traders, and a greater reduction in losses for medium traders relative to small traders. The findings support the view that markets may be inefficient but adaptive mechanisms cause inefficiencies to disappear.

Using the same dataset, the second essay investigates the source of superior local returns. Investors bias their portfolios towards crops grown within 100km and earn returns in these "local" commodities that are 3.2% higher than in their non-local commodities. This differential is greatest in crops that are weather sensitive and for which India has a high percentage of world production. The results are consistent with traders possessing superior domestic supply information on their local commodities due to lower acquisition costs caused by proximity to crop production. The third essay evaluates a randomized controlled trial that provided financial education and spot and futures prices to farmers. Treated individuals score higher on a test of knowledge of futures markets, indicate a greater trust in financial markets, and report changes in price gathering behavior. They are more likely to mention using futures prices to form price expectations and report price expectations that are closer to contemporaneous spot and futures prices. However, their real investment decision, crop selection, remains unchanged.