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Does Futures Trading Reduce Price Fluctuations in the Cash Markets?

In: The Economics of Futures Trading

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  • Mark J. Powers

Abstract

One of the recurring arguments made against futures markets is that, by encouraging or facilitating speculation, they give rise to price instability. This argument, in various versions, has been made throughout past Congressional hearings on onion and potato futures. The theoretical literature available on the subject of futures trading and price stability is rather scanty and inconclusive. Most of the evidence has been gathered on onion and potato prices. It suggests that: a) the seasonal price range is lower with a futures market because of speculative support at harvest time; b) sharp adjustments at the end of a marketing season are diminished under futures trading because they have been better anticipated; and c) year-to-year price fluctuations are reduced under futures trading because of the existence of the futures market as a reliable guide to production planning. See Roger Gray, and Holbrook Working (1958, 1960, 1963).

Suggested Citation

  • Mark J. Powers, 1976. "Does Futures Trading Reduce Price Fluctuations in the Cash Markets?," Palgrave Macmillan Books, in: The Economics of Futures Trading, chapter 13, pages 217-224, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-02693-7_14
    DOI: 10.1007/978-1-349-02693-7_14
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    Cited by:

    1. Lin Xie & Jiahua Liao & Haiting Chen & Xuefei Yan & Xinyan Hu, 2021. "Is Futurization the Culprit for the Violent Fluctuation in China’s Apple Spot Price?," Agriculture, MDPI, vol. 11(4), pages 1-14, April.
    2. Dragan Miljkovic & Cole Goetz, 2020. "Destabilizing role of futures markets on North American hard red spring wheat spot prices," Agricultural Economics, International Association of Agricultural Economists, vol. 51(6), pages 887-897, November.
    3. Goetz, Cole & Miljkovic, Dragan & Barabanov, Nikita, 2021. "New empirical evidence in support of the theory of price volatility of storable commodities under rational expectations in spot and futures markets," Energy Economics, Elsevier, vol. 100(C).

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