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The Economic Function of Futures Markets

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  • Williams,Jeffrey C.

Abstract

This book offers an explanation of why commodity processors and dealers use futures markets. It argues that they use futures contracts as part of an implicit method of borrowing and lending commodities, contrary to the accepted view of dealers averse to the fluctuating value of their inventories wanting insurance against price risk. Employing models developed to explain the demand for money, this book demonstrates that risk-neutral dealers have sufficient reason to use futures markets. Moreover, the book exposes major internal inconsistencies in the accepted explanation. Rather than insurance markets, the appropriate analogy is the money market, which is the point the book establishes through discussing actual loan markets in commodities. This insight into the function of futures markets is then used to explain how futures prices for different delivery dates express a term structure of commodity-specific interest rates and why futures markets flourish for some types of commodities and not for others.

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Bibliographic Info

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This book is provided by Cambridge University Press in its series Cambridge Books with number 9780521389341 and published in 1990.

Order: http://www.cambridge.org/uk/catalogue/catalogue.asp?isbn=9780521389341
Handle: RePEc:cup:cbooks:9780521389341

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Web page: http://www.cambridge.org

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Cited by:
  1. Pennings, Joost M.E. & Garcia, Philip & Irwin, Scott H., 2011. "Accounting for Heterogeneity in Hedging Behavior: Comparing & Evaluating Grouping Methods," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114787, European Association of Agricultural Economists.
  2. Anatoli Kuprianov, 1992. "Money market futures," Economic Review, Federal Reserve Bank of Richmond, issue Nov, pages 19-37.
  3. Timothy Q. Cook & Robert K. LaRoche (eds), 1993. "Instruments of the money market," Monograph, Federal Reserve Bank of Richmond, number 1993iotm.
  4. Anatoli Kuprianov, 1998. "Money market futures," Monograph, Federal Reserve Bank of Richmond, number 1998mm.
  5. Anatoli Kuprianov, 1998. "Over-the-counter interest rate derivatives," Monograph, Federal Reserve Bank of Richmond, number 1998cir.
  6. Andrew Coleman, 2011. "Financial Contracts and the Management of Carbon Emissions in Small Scale Plantation Forests," Working Papers 11_04, Motu Economic and Public Policy Research.

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