Publisher's Synopsis
Increasing financial sophistication and the recent acceleration in the pace of financial innovation has led to a dramatic growth in the economic significance of futures markets. In particular, the volume of trade in financial futures has mushroomed over the period of the last decade, and in the case of stock index futures now rivals that of trade in the stocks themselves. Given the greater prominence of these markets, it is important for both students and academics to be aware of recent advances in the theoretical understanding of their function and performance.;This volume examines a wide range of issues which arise in the theory of futures markets. An introductory chapter analyzes a simple equilibrium model of a futures market and focuses upon the role of the market in spreading risk and disseminating information. The determinants of hedging activity and the interaction between storage and futures trading are considered. Other chapters examine such issues as: conditions under which trading in futures markets leads to a fully efficient reallocation of risk; the effect of trading futures on price volatility in the spot market; can one generally expect that opening a futures market will lead to greater stability in the spot market?; the extent to which the futures price reveals traders' private information; determinants of hedging and speculative trading decisions; the relationship between forward prices and futures prices; factors influencing the likelihood of a manipulation of the market ie a corner or squeeze; the role of different assumptions about expectations formation on the nature of equilibrium; and the importance of programme trading and dynamic hedging strategies on price volatility in equity markets.
