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Strangling speculation: The effect of the 1903 Viennese futures trading ban

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  • Wurm, Laura

Abstract

How does futures trading affect spot price volatility? This paper uses a unique early-twentieth century natural experiment to test what happens when futures trading no longer exists. In 1903, futures trading in the Viennese grain market was banned. The permanency of this ban makes it ideal for studying its effect on volatility, using a difference-in-difference framework. Prices from Budapest, a market operating under similar conditions but unaffected by the ban, are used as a control. This paper finds increased spot price volatility and lower pricing accuracy because the information-transmission and risk-allocation functions of the futures market were no longer maintained.

Suggested Citation

  • Wurm, Laura, 2021. "Strangling speculation: The effect of the 1903 Viennese futures trading ban," QUCEH Working Paper Series 21-09, Queen's University Belfast, Queen's University Centre for Economic History.
    • Handle: RePEc:zbw:qucehw:202109
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    More about this item

    Keywords

    futures trading; volatility; information; market regulation; speculation; commodity markets; agricultural economics; Austro-Hungarian Empire;
    All these keywords.

    JEL classification:

    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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