Speculative Intensity and Spot and Futures Price Variability
Stephen McCafferty and
Steven Sheffrin ()
Economic Inquiry, 1991, vol. 29, issue 4, 737-51
This paper develops a simultaneous stochastic rational-expectations model of futures- and spot-price determination. Using the model, the authors find that increases in what they term speculative intensity increase spot-price variability arising from storage-cost shocks, but decrease spot-price variability from demand shocks. In contrast, increases in speculative intensity unambiguously decrease futures-price variability, regardless of the underlying source of disturbances. The authors are able to develop these comparative-static results because the model has a unique equilibrium. Copyright 1991 by Oxford University Press.
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