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Evolution and Informationally Efficient Equilibrium in a Commodity Futures Market

In: Evolutionary Foundations of Equilibria in Irrational Markets

Author

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  • Guo Ying Luo

    (McMaster University)

Abstract

This chapter presents an evolutionary model of a futures market to justify the eventual occurrence of an informationally efficient equilibrium. While the literature usually justifies informational efficiency in the context of rationality, here, in this dynamic futures market, traders do not maximize their profits or utilities nor do they form rational expectation about spot prices. Instead, they are preprogramed with some predetermined behavioral traits (such as trading types (buyer or seller), traders’ inherent abilities to predict the spot price). With the markets serving as a selection process of information, it can be shown that the proportion of time that the futures price equal to the spot price converges to one with probability one.

Suggested Citation

  • Guo Ying Luo, 2012. "Evolution and Informationally Efficient Equilibrium in a Commodity Futures Market," Studies in Economic Theory, in: Evolutionary Foundations of Equilibria in Irrational Markets, chapter 0, pages 61-88, Springer.
    • Handle: RePEc:spr:steccp:978-1-4614-0712-6_4
    DOI: 10.1007/978-1-4614-0712-6_4
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