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Does Futures Trading Reduce Price Fluctuations in the Cash Markets?

  • 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).

Keywords

Random Element Future Market Cash Market Price Fluctuation Price Series 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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References

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Copyright information

© Palgrave Macmillan, a division of Macmillan Publishers Limited 1976

Authors and Affiliations

  • Mark J. Powers

There are no affiliations available

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