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Portfolio Diversification, Futures Markets, and Uncertain Consumption Prices

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  • Peter Berck
  • Stephen G. Cecchetti

Abstract

This paper examines the robustness of the Keynes-Hicks backwardation hypothesis for futures markets in a model that admits diversification and inflation protection as speculative motives. It presents a criterion in terms of the correlation of futures price with anticipated consumption net of other asset holdings for the Keynes-Hicks proposition to be true. The paper finds the effect of changes in net wealth and commodity demand on the risk premium, spread, open interest, and storage.

Suggested Citation

  • Peter Berck & Stephen G. Cecchetti, 1985. "Portfolio Diversification, Futures Markets, and Uncertain Consumption Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(3), pages 497-507.
    • Handle: RePEc:oup:ajagec:v:67:y:1985:i:3:p:497-507.
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    File URL: http://hdl.handle.net/10.2307/1241068
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    Cited by:

    1. Joost M.E. Pennings & Raymond M. Leuthold, 1999. "Futures Exchange Innovations: Reinforcement versus Cannibalism," Finance 9905003, University Library of Munich, Germany.
    2. Blank, Steven C., 1989. "Research On Futures Markets: Issues, Approaches, And Empirical Findings," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(1), pages 1-14, July.
    3. Pennings, Joost M. E. & M. Leuthold, Raymond, 2001. "Introducing new futures contracts: reinforcement versus cannibalism," Journal of International Money and Finance, Elsevier, vol. 20(5), pages 659-675, October.
    4. Walter C. Labys & Alfred Maizels, 1990. "Commodity Price Fluctuations and Macro-economic Adjustments in the Developed Countries," WIDER Working Paper Series wp-1990-088, World Institute for Development Economic Research (UNU-WIDER).

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