Journal article
Forward Exchange, Futures Trading, and Spot Price Variability: A General Equilibrium Approach
Econometrica, Vol.55(6), pp.1433-1450
11/01/1987
DOI: 10.2307/1913565
Abstract
We investigate the effect of opening a forward or futures market on spot price or real exchange rate variability in a two-agent, two-good, two-state general equilibrium model. We derive a linear approximation to the change in spot price variability which results from opening such a market. This is shown to depend upon such familiar parameters as substitution elasticities, marginal propensities to consume, and degrees of risk aversion. Our analysis highlights the importance of the income transfers which occur as a result of capital gains and losses in the forward market. We find that there is some presumption in favor of the view that opening a forward market reduces spot price variability. The presumption is strengthened the less risk averse are agents.
Details
- Title: Subtitle
- Forward Exchange, Futures Trading, and Spot Price Variability: A General Equilibrium Approach
- Creators
- Paul WellerMakoto Yano
- Resource Type
- Journal article
- Publication Details
- Econometrica, Vol.55(6), pp.1433-1450
- DOI
- 10.2307/1913565
- ISSN
- 0012-9682
- eISSN
- 1468-0262
- Publisher
- The Econometric Society
- Number of pages
- 18
- Language
- English
- Date published
- 11/01/1987
- Academic Unit
- Finance
- Record Identifier
- 9984963049602771
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