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Price Stability and Futures Trading in Commodities

Working Paper 316 | Published October 1, 1986

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Authors

photo of Larry E. Jones

Larry E. Jones Visiting Scholar

Ravi Jagannathan

Price Stability and Futures Trading in Commodities

Abstract

In this paper, we characterize those situations in which after the introduction of futures markets there is either an unambiguous change in the volatility of spot prices or an unambiguous change in welfare. We provide examples of the usefulness of this approach by giving two alternative sets of sufficient conditions for price volatility to decline following the introduction of futures trading. We also provide a set of sufficient conditions for the introduction of futures trading to increase the welfare of all agents.


Published in _The Quarterly Journal of Economics_ (vol. 105, iss. 2, May 1990, pp. 527-534), https://doi.org/10.2307/2937798.