Normal Backwardation and the Inventory Effect

Rodney D Fort and James Quirk

Journal of Political Economy, 1988, vol. 96, issue 1, 81-99

Abstract: The existence of backwardation in futures markets remains an intriguing and controv ersial issue. The authors show that a backwardation equilibrium can o ccur in a true futures market when participants are identical (degree of risk aversion, level of commodity commitments for long and short hedgers, or probability beliefs) using Hendrik J. Houthakker's comple tely neglected notion of an inventory effect that results in a patter n in the nearness of cash and futures prices over the harvest cycle. Copyright 1988 by University of Chicago Press.

Date: 1988
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