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Futures Markets, Hedging and Speculation

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The New Palgrave Dictionary of Economics

Abstract

Futures markets provide partial income risk insurance to producers whose output is risky, but very effective insurance to commodity stockholders at remarkably low cost. Speculators absorb some of the risk but hedging appears to drive most commodity markets. The equilibrium futures price can be either below or above the (rationally) expected future price (backwardation or contango). The various effects futures markets can have on market and income stability are discussed. Rollover hedges can extend insurance from short-horizon contracts over longer periods.

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  1. http://link.springer.com/referencework/10.1057/978-1-349-95189-5

    David M. Newbery

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  1. David M. Newbery
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Newbery, D.M. (2018). Futures Markets, Hedging and Speculation. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_861

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