INVITED PAPER — A CONJECTURE ON THE ORIGINS AND EVOLUTION OF MARKETS

Richard L. Sandor ()
Additional contact information
Richard L. Sandor: Aaron Director Lecturer in Law and Economics, University of Chicago Law School, Chicago, Illinois, USA

The Singapore Economic Review (SER), 2022, vol. 67, issue 06, 1781-1785

Abstract: The author shares his theory on market creation and evolution from his perspective as an academic and a practitioner who has been involved in financial innovation for five decades. Rather than being spontaneously created, markets appear to follow a clear set of steps (the “seven-stage†process) from inception to maturity. It is critical that the benefits from transacting are greater than the costs of establishing the market — otherwise the evolution does not occur. Historical examples of the process outlined by the author can be found in commodity, equity, fixed income and environmental markets. The author provides observations and lessons that his evolutionary framework shares with financial inventive activity in new and existing products in our rapidly evolving digital world. Recent digital innovations such as the blockchain have evolved in a framework that did not require a legislative or regulatory framework (or what the author calls a “permissionless†environment). A properly designed regulatory environment can be permissionless regarding inventive activity (withness the Commodity Futures Trading Commission in the United States). A permissionless environment has historical precedent in other “analog†innovations such as wheat trading in the 19th century or financial futures in the mid-1970s. Following the seven-stage process, those innovations arose from structural changes or latent economic demands. Their standards and infrastructure were only much later understood and adopted by the regulators. Given that, the author suggests that since changes now occur at hyper speed, the implications for the future shape of derivatives markets are likely to be profound.

Keywords: Financial innovation; market evolution; blockchain; derivatives (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217590822500746
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:serxxx:v:67:y:2022:i:06:n:s0217590822500746

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0217590822500746

Access Statistics for this article

The Singapore Economic Review (SER) is currently edited by Euston Quah

More articles in The Singapore Economic Review (SER) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().