Trading on the Sydney Wool Futures Market: A Test of a Theory of Speculation at the Level of the Individual

  • B. A. Goss


The aim of this paper is twofold. Models of futures trading developed recently do not, in my view, deal adequately with certain aspects of individual equilibrium. For example, J. L. Stein’s theory does not determine explicitly the quantity of stocks held by the individual; the Peston and Yamey model does not deal with individual equilibrium at all; and that of Leland Johnson does not analyse the market position of an individual who is risk-loving.1 The purpose of Section 1 is to present a theory which determines the quantity of futures contracts held by an individual trader, whether he is risk-averting or risk-loving, using a method alternative to the indifference curve analysis.2


Risk Premium Demand Curve Future Price Market Position Supply Curve 
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  1. 1.
    Jerome L. Stein, ‘The Simultaneous Determination of Spot and Futures Prices?’, American Economic Review, vol. 51, 1961 and ‘The Opportunity Locus in a Hedging Decision: A Correction’, American Economic Review, vol. 54, 1964.Google Scholar
  2. M. H. Peston and B. S. Yamey, ‘Inter-Temporal Price Relationships with Forward Markets: A Method of Analysis’, Economica, vol. 27, 1960.Google Scholar
  3. Leland L. Johnson, ‘The Theory of Hedging and Speculation in Commodity Futures’, Review of Economic Studies, vol. 27, 1959–60.Google Scholar
  4. 4.
    We ignore costs of dealing. This point is discussed in detail by B. S. Yamey, ‘Short Hedging and Long Hedging in Futures Markets: Symmetry and Asymmetry’, Journal of Law and Economics vol. 14, 1971. Yamey points out (p. 424) that in practice the actual commodity normally commands a premium over the maturing future.Google Scholar
  5. E.g. C. A. Moser, Survey Methods in Social Investigation London, 1959, p. 227.Google Scholar
  6. 11.
    M. Nerlove, ‘Adaptive Expectations and Cobweb Phenomena’, Quarterly Journal of Economics, vol. 72, 1958.Google Scholar
  7. This hypothesis was used for estimation purposes by M. J. Brennan, ‘The Supply of Storage’, American Economic Review, vol. 48, 1958.Google Scholar

Copyright information

© Palgrave Macmillan, a division of Macmillan Publishers Limited 1976

Authors and Affiliations

  • B. A. Goss

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