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Measuring the Benefits from Futures Markets: Conceptual Issues

Author

Listed:
  • Donald Lien

    (Department of Economics, University of Texas at San Antonio, U.S.A.)

  • James Quirk

    (Emeritus Professor, California Institute of Technology, U.S.A.)

Abstract

This paper illustrates that the usual consumer surplus approach to evaluation of the benefits of a futures market fails because of certain unobserved benefits. In particular, when futures markets provide benefits in the form of a reduced variability of future spot prices, the usual consumer surplus approach will systematically understate the benefits of futures markets.

Suggested Citation

  • Donald Lien & James Quirk, 2002. "Measuring the Benefits from Futures Markets: Conceptual Issues," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 1(1), pages 53-58, April.
  • Handle: RePEc:ijb:journl:v:1:y:2002:i:1:p:53-58
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    References listed on IDEAS

    as
    1. Duffie Darrell & Rahi Rohit, 1995. "Financial Market Innovation and Security Design: An Introduction," Journal of Economic Theory, Elsevier, vol. 65(1), pages 1-42, February.
    2. Hadar, Josef & Russell, William R, 1969. "Rules for Ordering Uncertain Prospects," American Economic Review, American Economic Association, vol. 59(1), pages 25-34, March.
    3. Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    futures markets; price variability; consumer surplus;

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • G0 - Financial Economics - - General

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