Speculative securities

Jose Marin () and Rohit Rahi ()

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: A speculative security is an asset whose payoff depends on a random shock uncorrelated with economic fundamentals (a sunspot) about which some traders have superior information. In this paper we show that agents may find it desirable to trade such a security in spite of the fact that it is a poorer hedge against their endowment risks as the time of trade, and has an associated adverse selection cost. In the specific institutional setting of innovation of futures contracts, we show that a futures exchange may not have an incentive to introduce a speculative security even when all traders favor it.

Keywords: Information revelation; sunspots; security design; futures contract; trading volume (search for similar items in EconPapers)
JEL-codes: D82 G14 (search for similar items in EconPapers)
Date: 1997-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Speculative securities (1999)
Working Paper: Speculative Securities (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:223

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