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Commodity futures and options

In: Handbook of Agricultural Economics

Author

Listed:
  • Williams, Jeffrey C.

Abstract

Organized exchanges have evolved methods for enforcing contracts, which allow the contracts themselves to be traded at low cost. Theorists have modeled futures contracts as tools for risk management, despite an extensive empirical literature that does not support predictions about bias in prices or speculators' behavior. Another perspective models commercial firms as using futures contracts to arbitrage, to minimize transaction costs, to substitute temporarily for merchandising contracts. Because commercial firms tie their processing and storage decisions to the constellation of futures prices, futures prices have major allocative effects, even if their forecasting power is inevitably poor.

Suggested Citation

  • Williams, Jeffrey C., 2001. "Commodity futures and options," Handbook of Agricultural Economics,in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 13, pages 745-816 Elsevier.
  • Handle: RePEc:eee:hagchp:2-13
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    Citations

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    Cited by:

    1. Isengildina-Massa, Olga & Irwin, Scott H. & Good, Darrel L. & Gomez, Jennifer K., 2008. "The Impact of Situation and Outlook Information in Corn and Soybean Futures Markets: Evidence from WASDE Reports," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 40(01), pages 89-103, April.
    2. Sergio H. Lence, 2009. "Do Futures Benefit Farmers?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 154-167.
    3. Morales, C. & Garrido, Alberto & Palinkas, Peter & Szekely, Csaba, 2008. "Risks Perceptions and Risk Management Instruments in the European Union: do farmers have a clear idea of what they need?," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43956, European Association of Agricultural Economists.
    4. Hobæk Haff, Ingrid & Lindqvist, Ola & Løland, Anders, 2008. "Risk premium in the UK natural gas forward market," Energy Economics, Elsevier, vol. 30(5), pages 2420-2440, September.
    5. Modjtahedi, Bagher & Movassagh, Nahid, 2005. "Natural-gas futures: Bias, predictive performance, and the theory of storage," Energy Economics, Elsevier, vol. 27(4), pages 617-637, July.
    6. Gordon Rausser & William Balson & Reid Stevens, 2010. "Centralized clearing for over-the-counter derivatives," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 2(4), pages 346-359, November.
    7. Franken, Jason R.V. & Garcia, Philip & Irwin, Scott H., 2009. "Is Storage at a Loss Merely an Illusion of Spatial Aggregation?," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 27.
    8. Bharat Ramaswami & Jatinder Bir Singh, 2006. "Underdeveloped spot markets and futures trading: The Soya Oil exchange in India," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 06-03, Indian Statistical Institute, New Delhi, India.

    More about this item

    JEL classification:

    • Q00 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - General

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