The Economics of Futures Markets

This is work develops a theory of the real effects of futures markets, their role in the inter-temporal allocation of resources, and their effects on economic and social welfare. Futures are neither insurance nor a gamble, but, Professor Stein argues, given the market's influence on expected output, actual supply, price variance and competition, they have become essential risk management tools. In this wide-ranging study he surveys the current and potential uses of futures, from traditional commodities to forward-pricing guidelines. Stein presents his analysis as a model, not a manual. There are applications for the foreign exchange market as well as traditional commodities. In the case of interest rates and stock index futures, the focus is upon the capital formation process - a significant policy issue. Stein also provides a consistent theoretical explanation of the numerous empirical studies which have been conducted in this area.