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The economic advantage of learners in a spot/futures market
Author(s) -
Linn Scott C.,
Stanhouse Bryan E.
Publication year - 2003
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.10059
Subject(s) - speculation , futures contract , futures market , spot contract , economics , spot market , forward market , commodity , commodity market , financial economics , function (biology) , microeconomics , market economy , macroeconomics , finance , engineering , electricity , evolutionary biology , biology , electrical engineering
This article examines the economic advantage of learners in a futures market. We develop a dynamic model oflearning in which a spot market and futures market both exist for a real good. The economy is composed ofproducers who can engage in hedging activities, speculators who trade in the futures market, and consumers who aredescribed by an inverse demand function for the underlying commodity. Producers and speculators are heterogeneousand are differentiated based upon the predictive equations they employ when formulating forecasts of nextperiod's spot price. We derive the dynamic rational‐expectations equilibrium of the model and showthat learners enjoy an economic advantage in the futures market. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark23:151–167, 2003
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