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Futures Markets and Informational Efficiency: A Laboratory Examination
Author(s) -
FORSYTHE ROBERT,
PALFREY THOMAS R.,
PLOTT CHARLES R.
Publication year - 1984
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1984.tb03887.x
Subject(s) - futures contract , economics , asset (computer security) , futures market , variance (accounting) , market efficiency , econometrics , rational expectations , financial economics , market price , capital asset pricing model , microeconomics , computer science , computer security , accounting
Through the use of laboratory market methodology, the effect of a futures market on the time path of asset prices is studied and competing models of asset pricing are analyzed. With replication of market conditions, the predictions of a rational expectations equilibrium model are relatively accurate whether or not futures markets are present. However, the presence of futures markets increases the speed with which an efficient equilibrium is achieved. While this more rapid adjustment can increase the variance of spot market prices as they move to equilibrium, this increased variance reflects efficiency gains due to better information.