s p 500 cash stock price volatilities s p 500 stock return volatilities are compared to the volatilities of a matched set of stocks after controlling for cross sectional differences in firm attributes known to affect volatility no significant difference in volatility is observed between 1975 and 1983before the start of trade in index futures and index options since then s p 500 stocks have been relatively more volatile the difference is statistically but not economically significant the relative increase occurs primarily in daily returns and only to a lesser extent in longer interval returns other factors besides the start of derivative trade could be responsible for the small increase in volatility stock price volatility has received much attention in the popular press over the last few years especially since the october 19 1987 stock market crash the rise in volatility has alarmed investors regulators and the public in general some suggest that the start of trade in stock index futures and index options increased speculative activity that in turn destabilized cash markets causing higher volatility large trading activity in the derivative contracts makes the suggestion plausible volume in index futures and index options increased dramatically since their introductions in 1982 and 1983 by 1987 the average daily dollar volume in the s p 500 futures contracts alone exceeded the dollar volume of cash s p 500 trade by a factor of about two while the dollar value of the daily net change in total open interest is about 8 of s p 500 stock dollar volume speculative trade in futures and options frequently is accused of destabilizing underlying cash markets the charge has been made for more than a century in the agricultural precious metal and currency markets recent evidence by french and roll 1986 showing stock variance to be strongly related to trading session hours heightens these concerns unfortunately theoretical analyses of whether speculative trade destabilizes cash markets lead to conflicting conclusions depending on what assumptions are made 1 school of business administration university of southern california and office of economic analysis u s securities and exchange commission i wish to thank mary denny mcsweeny and steve hornstein for their valuable research assistance and the referee and editor for their many suggestions and insights the opinions expressed in this paper do not necessarily reflect those of the u s securities and exchange commission or those of the author s colleagues on its staff an increase in well informed speculative trade has two opposite effects on measured volatility it decreases volatility due to order flow imbalances caused by uninformed traders because informed traders provide liquidity in such events and it increases volatility due to new fundamental information since the information which is assumed to be generated at discrete time intervals is impounded into

risk aversion and the recommended hedging ratio in a recent article in this journal kahl reviewed the existing literature on the determination of optimal futures and cash market positions the optimal hedging ratios were found to depend on whether the cash position was treated as endogenous or predetermined and some general implications were set forth the surprising conclusion was that the optimal hedging ratio is independent of the individual s risk aversion even though the optimal positions in the cash and futures markets are themselves not independent of the risk parameter kahl demonstrates that this conclusion

dynamic perspectives on agricultural policy issues among the innovators fred waugh was one of the most prolific he made pioneering contributions in linear programming statistics and econometrics demand analysis the welfare effects of price risk and the analysis and explanation of commodity cycles as a research leader mentor and teacher at the usda he left his mark on the work of later generations of researchers i find myself no exception as will become clear from what i have to say in this paper even though i never met him in person my work has been influenced by what he wrote and by what his students wrote and taught among the many topics that interested waugh were the dynamics of free market behavior and the implications for policy formation in this paper i consider models of markets in which the dynamics run in two directions forward from current conditions to expectations of future prices and back from price expectations to current decisions both types of linkages can be crucial in competitive models of agricultural production in which land has a prominent role as the quintessential fixed asset a central challenge of market analysis from waugh s time till now has been to infer from market observations whether markets are behav

explaining european union citizens trust in the european central bank in normal and crisis times we study the determinants of trust in the european central bank ecb as measured by the european commission s eurobarometer survey in particular during the global financial crisis and the european sovereign debt crisis we find that the fall in trust in the ecb in crisis times can be rather well explained based on the pre crisis determinants we also show that the fall in trust reflected the macroeconomic deterioration a more generalized fall in the trust in european institutions in the wake of the crisis and the severity of the banking sector s problems to which the ecb was associated in the public opinion

on the accuracy of the mean variance approximation for futures markets abstract simple approximate fomulae for the volume and gains from futures trading are derived using the mean variance model the errors involved are exactly quantified and shown to be negligible for the futures price and welfare gains though potentially larger for volumes

spot and futures prices of nonstorable commodities under rational expectations the paper examines the effect of the presence of a commodity futures market upon the price formation process in a stochastic rational expectations framework an optimizing model with price uncertainty and risk aversion is used in order to solve equilibrium distributions of prices for nonstorable commodities the existence of futures trading does not affect the degree of short term spot price fluctuations however if the commodity market disturbance that originates from stochastic consumption demand is serially dependent then the long term price variation is smaller with a futures market than without it futures prices fluctuate less variably over time than spot and expected prices finally there exists a futures intervention rule whereby the authority can stabilize spot prices and raise the overall welfare of society

economics health and health economics hyes healthy years equivalent versus qalys quality adjusted live year this paper responds to culyer and wagstaff s cw and buckingham s b arguments we refute their claim about the equivalence of hyes and qalys they fail to distinguish between choice under uncertainty and under certainty cw assume that all individuals have a specific form of utility function which yields their conclusion of equivalence b s arguments confuse the measurement technique and the utility theory from which it stems his argument about the normative superiority of the qaly construct is inconsistent with economic thinking the hye by being compatible with the principles of economics is superior to the qaly for economic evaluations of health care interventions

qalys and hyes under what conditions are they equivalent the paper examines what restrictions have to be imposed on the individual s preference structure for qalys and hyes to yield identical results it is shown that using qalys involves imposing three additional restrictions empirical evidence suggests that these restrictions cannot be expected to hold in all applications the main problem in using hyes appears to be practical an alternative index is proposed that may help to bridge the gap between qalys and hyes by combining to some extent the advantages of the two measures

simulating the impacts of contract supplies in a spot market contract market equilibrium setting this article embeds a principal agent model within a market equilibrium model of contract and cash markets to analyze the impact of contracting on the spot market for hogs the equilibrium model incorporates both quality differentiation in the contract market and an endogenously determined cash market price for three types of contracting scenarios market equilibrium conditions are derived and results are presented for a numerical example contrary to some empirical results our model shows that the increased supply of hogs under typical formula price contracts can increase or decrease the cash market price depending on the relative size of overall contract supplies

market watch information and availability cascades among the media and investors in the u s ipo market in this study we advance current research on social influence in markets by examining how the recency and availability of information about others actions within and between different communities influence their allocation of attention and their evaluations specifically we examine how the media and investors allocate attention to and evaluate newly public firms in the days following their initial public offerings ipos our findings have implications for understanding the fieldwide processes through which the value of new firms is established in markets

price volatility trading volume and market depth evidence from futures markets the relations between volume volatility and market depth in eight physical and financial futures markets are examined evidence suggests that linking volatility to total volume does not extract all information when volume is partitioned into expected and unexpected components the paper finds that unexpected volume shocks have a larger effect on volatility further the relation is asymmetric the impact of positive unexpected volume shocks on volatility is larger than the impact of negative shocks finally consistent with theories of market depth the study shows large open interest mitigates volatility

the value of ideal contingency markets in agriculture an incomplete markets equilibrium in which no contingency markets are available is compared to a complete markets equilibrium formed by introducing a futures market and a crop insurance market the two regimes are compared using comparative static and welfare analyses numerical examples highlight important characteristics of the model and illustrate how the effects of introducing contingency markets can be quantified the main conclusions are that contingency markets in agriculture increase economic efficiency but there is no guarantee that farmers and consumers both benefit it is found that futures and crop insurance markets may reduce farmer welfare when the demand for farm products is price inelastic

do futures benefit farmers simulations are used to analyze welfare and market and farm level effects of making futures available to producers of a storable commodity key features of the model are the explicit consideration of dynamic impacts due to inventories and of aggregate market effects associated with futures adoption by some producers application to the natural rubber market shows that futures availability can lead to sizeable market and farm level effects futures availability enhances consumer welfare reduces non adopter welfare and yields important welfare gains for adopters when their market share is small and welfare losses when they account for a sufficiently large market share

the effect of professional advice on the stability of a speculative market the paper is motivated by the apparent inconsistency of situations in which speculators rely heavily on relatively few advisers when theory and evidence indicate that market fluctuations are predominantly random and unpredictable a highly stylized model is used to show how such situations can arise if speculators choose advisers on the basis of observed track records and how block behavior and increased market instability can result it is argued that inferences based on track records may represent a confusion of luck with skill or more formally an inappropriate choice of null hypothesis to be tested other related issues are discussed

risk the financial market and macroeconomic equilibrium growing recognition of the importance of stock market phenomena to the real economy underscores the need for models linking exogenous uncertainty asset market performance and the rest of the economy in an optimizing framework without certainty equivalence this paper constructs a three agent model with continuous time stochastic variables uncertain private production and government expenditure and forward looking rational agents the growth rate of output physical capital accumulation financial asset returns and uncertain inflation are determined as functions of the exogenous uncertainty in the economy analysis of the model finds that increased risk associated with government policy often reverses in an explainable way the conventional comparative static predictions of nonstochastic macro models

risk futures pricing and the organization of production in commodity markets this paper examines equilibrium in a spot and futures market with both primary producers growers and intermediate producers processors for a commodity that is subject to output shocks processors tend to hedge long in contrast with hick s theory of futures hedging nevertheless if transaction costs are low the two stage production process brings about a downward futures price bias consistent with hick s pricing prediction but if costs of trading futures are high growers tend to be differentially driven from the futures market reversing the direction of the bias futures trading may also affect the organization of industry when demand is inelastic futures trading can serve as a substitute for vertical integration as a means of diversifying risk because the risk positions of growers are complementary with those of processors

the determination of spot and futures prices with storable commodities this paper analyzes the effects of futures trading in a market for a storable commodity in which producers and speculators are assumed to be risk averse and specifications of the aggregate supply and inventory demand functions are derived from explicit optimization a critical aspect is how the parameters of these functions change with the introduction of the future market as it is through these induced parameter changes that the futures market exerts its influence on the spot price the effects of the futures market on both the long run average spot price and its variance are analyzed while we are unable to draw any definitive conclusions on this issue we find that in all cases considered the futures market stabilizes the spot price as well as lowering its long run mean for many years now the question of the effects of futures trading on the stability of spot prices has been extensively debated this topic has been discussed at various levels for example farmers and agricultural interest groups have claimed that futures trading destabilizes spot prices thereby imposing welfare losses on the economy in the united states congress has decided that futures trading can cause price destabilization and has subjected futures trading to the regulation of the commodity futures trading commission at a more analytical level economists have been investigating the issue both empirically and more recently theoretically as well

determinants of hedging and risk premia in commodity futures markets this paper examines the determinants of commodity futures hedging and of risk premia arising from covariation of the futures price with stock market returns and with the reve nues of producers owing to supply shocks that stochastically redistribute real wealth surplus between producers and consumers and to limited participation in the futures market the total risk premium in the model is not proportional to the contract s covariance with aggregate consumption stock market variability interacts with the incentive to hedge causing the producer hedging component of the risk premium to increase de crease with income elasticity for a normal inferior good production costs that depend on output raise the premium we argue that output and demand shocks will typically be positively correlated raising the premium high supply elasticity reduces the absolute heding premium by reducing the variability of spot price and revenue

speculative intensity and spot and futures price variability this paper develops a simultaneous stochastic rational expectations model of futures and spot price determination using the model we find that increases in what we term speculative intensity increase spot price variability arising from storage cost shocks but decrease spot price variability arising from demand shocks in contrast increases in speculative intensity unambiguously decrease futures price variability regardless of the underlying source of disturbances we are able to develop these comparative static results because the model has a unique equilibrium

information diversity and market behavior the paper addresses two major issues raised by information diversity in a speculative market first we analyze what property of an investor s information leads to an expected speculative profit and show that independence is more important than accuracy second we consider whether the market price must become fully efficient in the sense that every investor s information is accurately discounted when traders use it rationally as an information source we prove that for any information structure there is a unique equilibrium weighting of investor beliefs at which the price is fully efficient and also every trader s expected profit is zero except for special structures however this equilibrium need not be attained in finite time much of modern capital market theory depends heavily on the assumption that investors know the expected values variances and covariances of asset returns although the assumption of homogeneous expectations is a conventional one and necessary for many theoretical results it is not one which can be offered with much confidence real world investors have access to differing information and may also disagree on the correct interpretation of widely held information when asset returns are assumed to be governed by a known probability distribution many features of trading in real world markets are eliminated from consideration there is no role for information gathering and no way for an investor to profit from having superior information indeed this term has no real meaning since all relevant information is contained in the known returns distribution speculative trading is also hard to explain without divergence of opinion a speculator who thought the market price impounded all available information would never trade against it with heterogeneous information we lose some of the neat results of standard capital market theory but new questions can be addressed about how information diversity among investors affects the markets in which they participate one issue concerns the impact of informational differences on investor profits investors who are better informed than others or are better able to evaluate widely held information should be able to earn higher returns all effort devoted to security analysis and market research depends on the belief that this is so but what makes one investor s information superior to another s beyond the circular observation that those investors with consistent profits must be better informed than those with losses do investors with inferior information however measured continually lose money until they are squeezed out of the market or can an

testing for granger s full causality a procedure is proposed to test for the existence of a fully causal relationship between two variables the method involves contrasting the probabilistic forecasting performance of a univariate and bivariate specification for the same variable y if there exists some theory or belief that x causes y and the addition of a variable x to the information set of a prequential forecasting system for a variable y reduces miscalibration and or the level of forecast uncertainty with respect y s distribution for the next period then a fully causal effect running from x to y may be inferred vector autoregression allows testing for feedback the method is to be applied to the issue of causality between the live cattle futures market and a major slaughter cattle cash market copyright 1992 by mit press

speculation optimism and differential information speculative trading has for quite some time been an important question for at least two reasons firstly as a positive question of whether speculative behavior basically is caused by differences in information or by differences in aversion to risk secondly the question is related to the informational efficiency of decentralized market systems if access to information not currently available to the market makes possible a speculative profit the incentive to acquire information may be too excessive from a social point of view the aim of this paper is to clarify the relationship between information and speculation in his seminal article on information acquisition in decentralized market economies hirshleifer 12 showed that the private value of acquiring information depends critically on the speculative profits to be made from this information hirshleifer 12 distinguished between information foreknowledge which affects productive decisions and information which only has implications for exchange similarly fama and laffer 5 distinguish between operational information which improves a firms operating decisions and trading information which only affects trading decisions it is argued due to the speculative profits to be made from having access to information not available to the market that there are excessive private incentives to acquire information without any relevance for productive decisions

information diversity and market behavior a reply professor minassian has raised technical points regarding my paper which for the most part seem to be well founded though not crucial to the basic results in this reply my objective will be to discuss what these mean in the context of the model and to offer slightly revised statements of theorems 1 and 3 to eliminate the problems equation 1 which duplicates equation 9 in 1 gives the following expression for the expected profits earned by trader i from trading in a pure speculative market

speculative commodity holdings abstract adopting a mean variance approach we characterize the optimal commodity holdings for a risk averse speculator within a discrete time framework a new factor namely covariance risk effect arises which essentially represents the difference between the optimal stock of a risk averse speculator and that of a risk neutral one

a rational expectations model of time varying risk premia in commodities futures markets theory and evidence the intertemporal hedging theory is used to model the role of spot price risk measured by the variance in futures market risk premia the model gives a theoretical basis for treating the variance as serially correlated when commodities are storable t he rational expectations hypothesis implies that agents use the varianc e process to predict risk therefore the expected variance should be incorporated in equilibrium risk premia tests on data from four commodity markets show that variances do have predictable components however premia are related to expected variances in only one market copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the effect of futures markets and corners on storage and spot price variability when a futures market is introduced the volume of storage should become more sensitive to changes in the return to storage the increase in storage sensitivity means that storage will absorb a larger proportion of demand and supply shocks than it did previously reducing spot price volatility data from the chicago board of trade support the hypotheses of increased storage sensitivity and reduced spot price volatility the effect of futures on spot price volatility is sensitive to the competitive structure of the futures market futures market manipulation causes spot price variance to increase despite manipulation the development of the wheat futures market caused the coefficient of variation of spot price to decline significantly

an analysis of the stabilizing and welfare effects of intervention in spot and futures markets this paper analyzes the effects of three alternative rules on the long run distributions of both the spot and futures prices ina single commodity market in which the key behavioral relationships are derived from the optimizing behavior of producers and speculators the rules considered include i leaning against the wind in the spot market ii utility maximizing speculative behavior by the stabilization authority in the futures market iii leaning against the wind in the futures market since the underlying model is sufficiently complex to preclude analytical solutions the analysis makes extensive use of simulation methods as a general proposition we find that intervention in the futures market is not as effective in stabilizing either the spot price of the futures price as is intervention in the spot market indeed rule iii while stabilizing the futures price may actually destabilize the spot price furthermore the analogous type of rule undertaken in the spot market will always stabilize the futures price to a greater degree than it does the spot price the welfare implications of these rules are also discussed our analysis shows how these can generate rather different distributions of welfare gains including the overall benefits this abstract was borrowed from another version of this item

futures trading information and spot price volatility evidence for the ftse 100 stock index futures contract using garch abstract this paper examines the impact of trading in the ftse 100 stock index futures on the volatility of the underlying spot market to examine the relationship between information and volatility as subject neglected in previous studies the garch family of techniques is used the results suggest that futures trading has led to increased volatility but that the nature of volatility has not changed post futures the finding of price changes being integrated pre futures but being stationary post futures implies that the introduction of futures has improved the speed and quality of information flowing to the spot market

hedging price risks of farmers by commodity boards a simulation applied to the indian natural rubber market abstract this paper investigates a hypothetical hedging scheme in a domestic commodity market under which a commodity board offers a forward contract to domestic producers and local traders and covers its commitments on an international futures exchange it is aimed to quantify welfare gains to agents in the market and costs and benefits of the board empirically the empirical work is based on the indian natural rubber market and the tokyo commodity exchange tocom for the period 1990 95 the hedging scheme is shown to increase welfare substantially particularly welfare of growers the costs of such a facility for the commodity board basis risk are negligible if the forward price offered on the domestic market is a small fraction below the international futures price the board can prevent losses at only slightly lower welfare gains

derivative securities and cash market stability this study investigates the effect of introducing interest rate futures and options on the price variances in related financial cash markets standard research approaches to this issue relate cash price stability before the introduction of futures and options trading to cash price stability after trading in the derivative security begins however controlling for the additional factors that may also effect cash markets is difficult the approach employed here to deal with this obstacle is motivated by recent theoretical research relating cash and futures markets but hitherto not operationalized to empirically test for a relationship between the markets varying parameter models of 1 the demand for short term treasury securities 2 the demand for large time deposits and 3 the supply of large time deposits are specified such that changes in the parameters imply changes in the volatility of the cash price these parameters are modelled as functions of the trading volume of interest rate futures and o

demand uncertainty and price stabilization price stabilization is an important policy goal of government intervention in competitive markets these policies are primarily directed at raising producer income and stabilizing market prices at levels acceptable to consumers and producers fox 1956 turnovsky 1978 newbery and stiglitz 1979 many of the stabilization policy results have been developed from the study of agricultural commodity markets in these markets prices tend to be highly variable due to uncertain and inelastic supply and demand schultz 1945 gardner 1981

a privately revealing rational expectations equilibrium for the futures market abstract this paper develops a model of the futures market with two types of participants farmers and speculators farmers undertake production decisions and face both output and spot price risk as opposed to speculators who face only spot price risk agents have constant absolute risk aversion von neumann morgenstern utility functions and form rational expectations about the future output shock and spot price we assume that traders specialize in information collection in our model the futures price is not a sufficient statistic for the market information we show that the rational expectations equilibrium ree futures price is privately revealing to traders who purchase costly information this ree is efficient in the sense that in equilibrium traders are in possession of all market information we demonstrate that traders a have an incentive to collect costly information and b are better off by specializing in collecting the information in which they have a comparative advantage in terms of the quality of the information that they can obtain finally we show that the futures market stabilizes the spot price

seasonal patterns of futures hedging and the resolution of output uncertainty abstract optimal futures hedging is examined in a two good model with stochastic output and sequential information arrival a producer s optimal hedge depends on demand elasticity sensitivity of his output to weather his correlation with aggregate output and how rapidly his output uncertainty is resolved relative to other producers during different seasonal periods because regional output uncertainties are resolved at different times the optimal futures position of a grower will commonly reverse in direction during the crop year a producer with non stochastic output who faces price risk arising from demand shocks may remain unhedged or even maintain a long position

international transmission of transitory and persistent monetary shocks under imperfect information abstract we analyze the transmission of monetary shocks in a new open economy macroeconomics model with one period nominal contracts and imperfect information shocks may have transitory and persistent components that can be disentangled only through the accumulation of information over time as a consequence the responses to shocks are significantly altered compared with the case of full information there are persistent effects on international relative prices and delayed exchange rate overshooting is possible following a persistent shock in some cases there are ex post excess returns as a positive interest rate spread is accompanied by an appreciating currency or vice versa lastly it is demonstrated that staggering reinforces persistence

a note on futures markets with small price and production risks when the spot price and production risk are jointly normally distributed the mean variance approach has little theoretical justification the authors use taylor approximations instead and show the three results one farmers hedge less than expected production when the futures price is less than or equal to the expected spot price two when the futures price equals the expected spot price farmers facing production risk produce less than those without production risk three normal backwardation contango prevails in the markets when correlation between the spot price and production risk is smaller greater in absolute value than the ratio of coefficients of variation of these variables copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

strategic trading behavior and price distortion in a manipulated market anatomy of a squeeze abstract this paper investigates an attempted delivery squeeze in a bond futures contract traded in london using cash and futures trades of dealers and customers we analyze their strategic trading behavior price distortion and learning in a market manipulation setting we argue that marked differences in settlement failure penalties in the cash and futures markets create conditions that favor squeezes we recommend that regulators require special flagging of forward term repurchase agreements on the key deliverables that span futures contract maturity dates and that exchanges mark to market their contract specifications more frequently or consider a cash settled contract on a basket of bonds

extent and possible causes of intrayear agricultural commodity price volatility wheat corn rice soybeans and cotton experienced higher volatility in the second half of the 2000s for the sample at hand the unit root tests only validate a new period of high volatility for wheat and cotton if in the next couple of years however corn rice and soybeans maintain their higher volatility a new period of high volatility may also be validated statistically regarding the factors driving the intrayear volatility gmm estimates show that commodity market fundamentals i e the stock to use ratio and to a lesser extent the degree of internationalization are the most systematically statistically significant coefficients among commodities over time consecutive low stock to use ratios and a thin international market provoke typically high volatility speculative activity and liquidity in the agricultural derivative market have a stabilizing effect on the spot price if any finally common macro factors significantly impact volatility especially the volatility of petrol and of exchange rates their dispersion importance over the sample is quite sizeable however it is difficult to establish a link between on the one hand loose monetary policy business cycle and inflation and on the other hand commodity price volatility as the sign of the estimated coefficient changes depending on the commodity and the estimated elasticities are quite low

distributional effects of fiscal consolidation if public goods and transfers are relatively more valuable to the poor the elderly poor stand to lose from public debt reduction achieved through spending cuts when long term surpluses produced by debt reduction are recycled into higher provision of public goods and transfers future generations of poor could gain if future surpluses are recycled through lower labour taxes working households in the future would be positively affected the impact of debt reduction on vertical equity is ambiguous yet inter rather than intragenerational equity is likely to pose the greatest obstacle to fiscal consolidation based on majority voting by self interested households debt reduction is unlikely to occur jel classification d91 e62 h23 h63

evaluation of public investment in health care is the risk irrelevant abstract in this note we discuss the application of developments in economic theory to the evaluation of risky public health programs we show that the use of expected values as measures of outcome in such programs is inappropriate instead we suggest the use of certainty equivalent values measured by a direct assessment the standard gamble as an appropriate way to evaluate the outcome

futures trading and volatility in the gnma market futures markets for agricultural commodities have existed for well over 100 years recently there has been a major expansion of futures trading into nontraditional areas particularly interest bearing securities and foreign currenciesthe so called financial futures the introduction of exchange traded futures contracts for treasury bills gnma pass through certificates and other securities has created new hedging arbitrage and speculative opportunities for the investors issuers and dealers who are active in the cash markets for these securities futures trading has also opened these markets to participation by new classes of traders particularly private and smaller institutional investors through the process of arbitrage a financial futures market will be closely linked to the cash market for the underlying securities an important concern of the regulatory authorities is what effect opening a futures market is likely to have on an existing cash market the purpose of this paper is to analyze the impact of futures trading in government national mortgage association gnma passthrough certificates on price volatility in the cash market for these securities there are several major ways in which opening futures trading can increase efficiency and smooth price variations in a cash market most importantly futures provide a mechanism for those who buy and sell the actual security or commodity to hedge themselves against unfavorable price changes through the futures market risk can be spread across a large number of investors and transferred away from those hedging spot positions to professional speculators who are more willing and able to bear it this risk transfer may substantially improve the functioning of the spot market because it reduces the need to incorporate risk premia in cash market transactions to compensate for the risk of price fluctuations second futures market may increase the informational efficiency of a cash market since futures prices are determined in a unified highly visible market by traders who specialize in gathering and evaluating information the futures market is expected to be an efficient market in the sense that prices will reflect the best estimate of true future values given the information currently available if anything an informationally efficient futures market should lead to more efficient pricing in the cash market the importance of both of these effects will depend upon the structure of the existing cash market the more developed and integrated is the cash market the

the informational effects of restrictions on short sales some empirical evidence in a world of heterogeneous investors a competitive financial market has two major functions first it is the mechanism by which ownership of the existing supply of risky assets is distributed among investors this is the role which is analyzed in detail by the standard capital asset pricing model capm and its many extensions the second important market function is to aggregate the diverse information held by different investors into a single price most versions of the capm eliminate the information aggregation function by assuming that investors hold homogeneous beliefs with respect to the probability distribution of asset returns exceptions which deal with some aspects of the problem are lintner 7 grossman 4 grossman and stiglitz 5 and figlewski 1 3

the working curve and commodity storage under backwardation there remains controversy over whether the empirical curve relating intertemporal commodity price spreads and stocks originally drawn by holbrook working in 1933 i e the working curve is a valid stylized fact in commodity markets the core of the controversy is the portion of the curve representing commodity stocks under backwardation in this article we analyze the original data used by working plus more disaggregated numbers we find that the working curve is indeed valid the diversity of stockholders and different stockholding motives most likely explain the empirical working curve relationship

life cycle preferences over consumption and health when is cost effectiveness analysis equivalent to cost benefit analysis this paper studies life cycle preferences over consumption and health status we show that cost effectiveness analysis is consistent with cost benefit analysis if the lifetime utility function is additive over time multiplicative in the utility of consumption and the utility of health status and if the utility of consumption is constant over time we derive the conditions under which the lifetime utility function takes this form both under expected utility theory and under rank dependent utility theory which is currently the most important nonexpected utility theory if cost effectiveness analysis is consistent with cost benefit analysis it is possible to derive tractable expressions for the willingness to pay for quality adjusted life years qalys the willingness to pay for qalys depends on wealth remaining life expectancy health status and the possibilities for intertemporal substitution of consumption

fat tails and volatility clustering in experimental asset markets abstract this paper presents results from experimental asset markets with asymmetric fundamental information we observe leptokurtic returns and a slowly decaying autocorrelation function of absolute returns in contrast to results from heterogeneous agent models hams we find that noise has no significant influence on the emergence of fat tails instead we observe a significantly positive relationship between the degree of heterogeneity of fundamental information and absolute returns which suggests that heterogeneous fundamental information is the source of fat tails with respect to volatility clustering we discover an intra periodical pattern where absolute returns decrease after the arrival of new asymmetric fundamental information

forward market equilibrium economists have long been interested in the functioning of forward futures markets keynes and hicks were the first to write persuasively in support of the theory of normal backwardation this theory says the futures price is biased downward relative to the expected future spot price as a means of compensating speculators for taking long futures positions 12 8 in this theory speculators are viewed as providing insurance to hedgers who desire to take short futures positions to reduce the riskiness of their commodity holdings in addition to normal backwardation there are theories of unbiasedness and normal contango the unbiasedness theory says that the futures price equals the expected spot price while the normal contango theory says that the futures price exceeds the expected spot price 4 19 21 however the controversy over the three theories has not been entirely resolved it has been suggested 4 19 that each of the three theories could be applicable at various points during the planting harvesting processing cycle of a crop as the net hedging demand shifts from a large number of hedgers who desire to be short in the futures market to a large number of individuals who are long hedgers nonetheless the traditional theories of futures markets have been criticized because they are not grounded in a general equilibrium model where participants tastes endowments and beliefs interact so as to generate a market equilibrium incorporating both speculative and non speculative transactions 9 it is the purpose of this paper to provide a framework within which normal contango normal backwardation and unbiasedness can each occur for commodities which have certain well specified characteristics independent of the relative numbers of participants on each side of the futures market in the spirit of 9 we consider the major source of uncertainty to be technological in nature quantity risk and argue that the commonly used definitions of hedger one who sells forward some fraction of his crop yield and speculator are not very useful for economic analysis instead the more generally applicable concept of hedger as one who trades mean income for reductions in risk in the rothschild stiglitz sense 17 is supported because it

j shaped returns to timing advantage in access to information experimental evidence and a tentative explanation abstract the question of how useful information is in financial markets has been discussed for decades and is still unresolved in this paper we challenge the widely held belief that additional information is never a disadvantage we present results from experimental financial markets with asymmetrically informed traders in all treatments we conduct we find a j shaped distribution of returns while the best informed outperform all others average informed traders have significantly lower returns than the least informed this can mainly be attributed to trend reversals in the fundamental information prices in our markets do not reflect ree but rather naive trader equilibrium

mad about austerity the effect of fiscal consolidation on public opinion we explore the impact of fiscal austerity on three different dimensions of public opinion in 26 european union countries consumer confidence attitude toward national authorities and european institutions on annual data between 1997 and 2017 our main finding is that the independent effect of a tighter fiscal stance on public opinion is not large and when present seems to closely follow the impact of fiscal austerity on economic activity our results therefore are inconsistent with the view that fiscal austerity necessarily implies a negative effect on public opinion and a decline in popularity of national and european institutions

monnet s error in entering a currency union without any political union european countries have taken a gamble will the needs of the currency unions force a political integration as anticipated by monnet or will the tensions create a backlash as suggested by kaldor friedman and many others we try to answer this question by analyzing the cross sectional and time series variation in pro european sentiments in the eu 15 countries the 1992 maastricht treaty seems to have reduced the pro europe sentiment as does the 2010 eurozone crisis yet in spite of the worst recession in recent history the europeans still support the common currency europe seems trapped there is no desire to go backward no interest in going forward but it is economically unsustainable to stay still

is more information always better experimental financial markets with cumulative information abstract we study the value of information in financial markets by asking whether having more information always leads to higher returns we address this question in an experiment where information about an asset s intrinsic value is cumulatively distributed among traders we find that only the very best informed traders i e insiders significantly outperform less informed traders however there is a wide range of information levels from zero information to above average information levels where additional information does not yield higher returns the latter result implies that the value of additional information need not be strictly positive

the demand for hedging and the value of hedging opportunities hedging strategies typically assume that hedging is costless and that only one futures market exists when these assumptions are dropped the demand for hedging is shown to depend on basis risk price risk and the hedger s risk preference the marginal and incremental value of hedging opportunities are computed for the general cases of one and two markets and applied to the specific case of pennsylvania dairy input hedging copyright 2000 oxford university press

open access and the evolution of the u s spot market for natural gas federal regulations promoting open access transportation dramatically altered the organizational structure of the u s market for natural gas in the 1980s generally unbundling the merchant and transport functions of interstate pipelines an empirical analysis of wellhead spot prices is undertaken to examine the effect of open access on the geographic scope of the spot market using monthly spot price data from 1984 91 three statistical tests are applied and compared price correlations granger causality and cointegration we find that open access integrated the regional wellhead markets into a national competitive market for natural gas the effects of unbundling on contracts for natural gas are then investigated incentives for long term contracts between pipelines and producers are shown to be effectively removed by the introduction of competitive buying and selling of gas at the wellhead through open access

information diversity and market behavior a comment in figlewski 1 the author construct s a model of a purely speculative market in which speculation on price changes is the only motive for trading and the return for investors as a group is zero even though each trader possesses information which he believes will allow him personally to make a profit p 90 lines 8 12 1 this zero sum game of commodity speculation is played over several successive periods in each period information is released the market opens and a market clearing price is established by tatonnement so that investors know what the market price pm will be before they trade and thereby obtain additional information about other traders estimates of p the ultimate endof period commodity spot price they use this information to update their expectations and all trading by the ith investor is ultimately based on forecasts conditioned on both 4ji trader i s information set and pm p 91 paragraph 2 of course investor i believes he has information that pm does not accurately reflect which will allow him to earn a speculative profit trading against the market p 91 paragraph 3 figlewski presents four theorems in his paper the major result of his paper is theorem 1

de stabilizing speculation on futures markets an alternative view point abstract this paper offers a new interpretation for possible destabilizing effects of opening futures markets in our model adapted from stein 1987 speculation on futures markets reduces the likelihood of occurrence of a rational expectations equilibrium although the equilibrium price is less volatile after the futures market is opened which is usually viewed as a stabilizing effect traders may find it more difficult or even impossible to coordinate their expectations in order to implement this equilibrium

do etfs increase volatility due to their low trading costs exchange traded funds etfs are a potential catalyst for short horizon liquidity traders the liquidity shocks can propagate to the underlying securities through the arbitrage channel and etfs may increase the nonfundamental volatility of the securities in their baskets we exploit exogenous changes in index membership and find that stocks with higher etf ownership display significantly higher volatility etf ownership increases the negative autocorrelation in stock prices the increase in volatility appears to introduce undiversifiable risk in prices because stocks with high etf ownership earn a significant risk premium of up to 56 basis points monthly

gambling preferences options markets and volatility this study examines whether the gambling behavior of investors affects volume and volatility in financial markets focusing on the options market we find that the ratio of call option volume relative to total option volume is greatest for stocks with return distributions that resemble lotteries consistent with the theoretical predictions of stein 1987 we demonstrate that gambling motivated trading in the options market influences future spot price volatility these results not only identify a link between lottery preferences in the stock market and the options market but they also suggest that lottery preferences can lead to destabilized stock prices

measurement of health state utilities for economic appraisal health status measurement for use in economic appraisal of health care programmes is reviewed in this paper with particular emphasis on utility measurement a framework for economic appraisal is presented displaying the various components that must be measured and showing how the three forms of analysis cost effectiveness analysis cost benefit analysis and cost utility analysis relate to the framework and to each other one of the components in the framework is health status it can be measured using ad hoc numeric scales willingness to pay receive or health state utilities the determination of health state utilities is reviewed covering the following issues alternative sources of utilities health state descriptions multi attribute utility approach determination of appropriate subjects utility aggregation and accuracy three measurement techniques for health state utilities are described in detail rating scale standard gamble and time trade off the use of these methods is described for both chronic and temporary health states and for both health states considered better than death and those considered worse than death

the time for austerity estimating the average treatment effect of fiscal policy after the global financial crisis a controversial rush to fiscal austerity followed in many countries yet research on the effects of austerity on macroeconomic aggregates was and still is unsettled mired by the difficulty of identifying multipliers from observational data this article reconciles seemingly disparate estimates of multipliers within a unified and state contingent framework we achieve identification of causal effects with new propensity score based methods for time series data using this novel approach we show that austerity is always a drag on growth and especially so in depressed economies a 1 of gdp fiscal consolidation translates into a loss of 3 5 of real gdp over five years when implemented in a slump rather than just 1 8 in a boom

measurement of consumer gains from market stabilization for most cases of practical significance in which partial equilibrium analysis is appropriate there is little difference between exact measures of consumer gains from market stabilization and approximations such as expected change in marshallian or hicksian consumer surplus careful specification of the nature of stabilization is more crucial than the choice of welfare measure it is important to represent correctly the demand curvature and supply response and to determine whether general equilibrium responses can be ignored in any event an improved analytical approximation and a simple numerical method for calculating the exact measures make it unnecessary to rely on suspect measures

market efficiency and natural selection in a commodity futures market while the literature usually justifies informational efficiency in the context of rationality this article shows informational efficiency by applying the evolutionary idea of natural selection in a dynamic futures market speculators are assumed to merely act upon their predetermined trading types buyer or seller their predetermined fractions of wealth allocated for speculation and their inherent abilities to predict the spot price reflected in their distributions of prediction errors with respect to the spot price this article shows that the proportion of time that the futures price equals the spot price converges to one with probability 1 article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

information and normal backwardation as determinants of trading performance evidence from the north sea oil forward market this paper utilizes transaction specific data on forward trading in the international petroleum market to test directly predictions from the theory of normal backwardation against information based predictions of trader performance with the ability to identify buyers and sellers the authors find that no traders make significant profits on interday measures within the day however traders likely to have superior information make significant profits the results are not supportive of normal backwardation but are consistent with the time pattern of information dissemination in this market deals made during the day are widely reported only at day s end copyright 1994 by royal economic society

testing for long horizon uip using ppp based exchange rate expectations abstract this paper revisits the uncovered interest parity relation it supplements existing work in two ways it focuses on long instead of short term interest rates and related to that employs exchange rate expectations derived from purchasing power parity ppp instead of actual outcomes among the major floating currencies over the period 1975 1997 the paper cannot support the notion of further increases in uip validation beyond that associated with the wave of financial market liberalization and deregulation in the early 1980s

intraday relationships between volatility in s p 500 futures prices and volatility in the s p 500 index abstract this paper examines the intraday relationships between the volatility of s p 500 futures prices and the volatility of the s p 500 index we calculate variance measures for minute to minute price changes on a daily basis and across 30 minute intervals the empirical results indicate that i futures volatility is greater than index volatility ii volatility increased for both futures prices and the index in absolute terms from 1984 through 1986 iii both futures and index volatility increased directly with futures trading volume and iv index volatility was systematically greater during the first 30 minutes of trading each day than at other times granger tests however reveal no systematic pattern of futures volatility leading index volatility or index volatility leading futures volatility

production flexibility stochastic separation hedging and futures prices we study a dynamic model where uncertainty about interim output adjustments causes producers to face price cost and output uncertainty stochastically separable production decisions are independent of the producer s risk preferences and expectations and are based on the prevailing futures price as a certain output price conditions under which futures contracts achieve stochastic separation are established optimal hedging and maturity structure of futures contracts equilibrium futures prices and the effects of futures trading on output are studied the systematic risk premium depends on the product of the futures beta and the covariance of the market return with production revenues article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

real effects of futures speculation asymptotically rational expectations to what extent does the diversity in the forecasting ability of futures speculators simply result in transfers of wealth among themselves and to what extent does it affect the allocation of resources on the basis of bayesian analysis it is assumed that the variance of forecast errors between the subjective and objective expectations of the subsequent price differs among groups two major conclusions are as follows 1 if given our parameter estimates the forecast error variance of the amateur speculators is less than six times that of the professionals then the existence of futures markets will lower the expected price to consumers increase expected output and lower the variance of the price 2 since small speculators lose to the professionals the relative variance of the forecast error of the amateurs to the professionals exceeds their relative weights as measured by the ratio of numbers to average risk aversion

information aggregation in a noisy rational expectations economy abstract this paper analyzes a general equilibrium model of a competitive security market in which traders possess independent pieces of information about the return of a risky asset each trader conditions his estimate of the return both on his own private source of information and price which in equilibrium serves as a noisy aggregator of the total information observed by all traders a closed form characterization of the rational expectations equilibrium is presented a counter example to the existence of fully revealing equilibrium is developed