Hostname: page-component-745bb68f8f-mzp66 Total loading time: 0 Render date: 2025-01-09T12:49:49.942Z Has data issue: false hasContentIssue false
  • English
  • Français

Commodity Futures and Spot Price Determination and Hedging in Capital Market Equilibrium

Published online by Cambridge University Press:  06 April 2009

Hans R. Stoll
Get access Rights & Permissions [Opens in a new window]

Extract

Hedgers are an integral element of most models of futures markets. They are typically viewed as involved in the storage or production process and attempting by futures market transactions to avoid price risk associated with holdings of the underlying commodity. Speculators accept the risk and receive compensation whose size is in considerable dispute. (Keynes [16], Telser [24], Cootner [6], Dusak [8]). This “insurance” view of hedging is sometimes expanded to allow for “discretionary” or “selective” hedging which tends to arise when expectations differ across individuals. Narrow models of hedging in the commodities market (Johnson [14], Heifner [11], Peck [19]), in the foreign exchange market (Ethier [9]), and in the bank loan market (Pyle [20]) as well as more general models of the determination of spot and futures prices that incorporate hedging (Stein [22]) have preceded or ignored the theory of equilibrium asset prices (Sharpe [21], Lintner [17]). On the other hand, recent models of the valuation of futures contrasts in capital market equilibrium have not considered the role of hedgers (Grauer and Litzenberger [10]).

Type
V. Financial Innovation: Securities and Markets
Information
Journal of Financial and Quantitative Analysis , Volume 14 , Issue 4 , November 1979 , pp. 873 - 894
Copyright
Copyright © School of Business Administration, University of Washington 1979

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Anderson, Ronald A., and Danthine, Jean-Pierre. “Hedger Diversity in Futures Markets: Backwardation and the Coordination of Plans.” Research Paper No. 71A, Columbia School of Business (01 1978).Google Scholar
[2]Baron, David P. “Flexible Exchange Rates Forward Markets, and the Level of Trade.” American Economic Review, Vol. 66 (06 1976).Google Scholar
[3]Black, Fischer. “Equilibrium in the Creation of Investment Goods under Uncertainty.” In Studies in the Theory of Capital Markets, edited by Jensen, Michael C.. New York: Praeger (1972).Google Scholar
[4]Black, Fischer. “The Pricing of Commodity Contracts.” Journal of Financial Economics, Vol. 3 (1976).CrossRefGoogle Scholar
[5]Brennan, Michael J. “The Supply of Storage.” American Economic Review, Vol. 48 (03 1958).Google Scholar
[6]Cootner, Paul. “Returns to Speculators: Telser vs Keynes” and “Rejoinder.” Journal of Political Economy, Vol. 68 (08 1960).Google Scholar
[7]Dumas, Bernard. “The Theory of the Trading Firm Revisited.” Journal of Finance, Vol. 33 (06 1978).Google Scholar
[8]Dusak, Katherine. “Futures Trading and Investor Returns: An Investigation of Commodity Market Risk Premiums.” Journal of Political Economy, Vol. 81 (12 1973).CrossRefGoogle Scholar
[9]Ethier, Wilfred. “International Trade and the Forward Exchange Market.” American Economic Review, Vol. 63 (06 1973).Google Scholar
[10]Grauer, Frederick, and Litzenberger, Robert. “The Pricing of Commodity Futures Contracts, Nominal Bonds and other Risky Assets under Commodity Price Uncertainty.” Journal of Finance, Vol. 34 (03 1979).Google Scholar
[11]Heifner, Richard G. “Optimal Hedging Levels and Hedging Effectiveness in Cattle Feeding.” Agricultural Economics Research, 24 (1972).Google Scholar
[12]Hirshleifer, Jack. “Foundations of the Theory of Speculation: Information, Risk and Markets.” Quarterly Journal of Economics, Vol. 89 (11 1975).CrossRefGoogle Scholar
[13]Jensen, Michael C., and Meckling, William H.. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” Journal of Financial Economics(10 1976).Google Scholar
[14]Johnson, Leland. “The Theory of Hedging and Speculation in Commodity Futures.” Review of Economic Studies, Vol. 27 (06 1960).CrossRefGoogle Scholar
[15]Kaldor, Nicholas. “Speculation and Economic Stability.” Review of Economic Studies, Vol. 7 (1939).Google Scholar
[16]Keynes, John M.A Treatise on Money, Vol. 2. London: MacMillan (1930).Google Scholar
[17]Lintner, John. “The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets.” Review of Economics and Statistics, Vol. 47 (02 1965).Google Scholar
[18]Mayers, David. “Nonmarketable Assets and Capital Market Equilibrium under Uncertainty.” In Studies in the Theory of Capital Markets, edited by Jensen, Michael C.. New York: Praeger (1972).Google Scholar
[19]Peck, Anne E. “Hedging and Income Stability: Concepts, Indications and an Example.” American Journal of Agricultural Economics, Vol. 57 (1975).Google Scholar
[20]Pyle, David H. “On the Theory of Financial Intermediation.” Journal of Finance, Vol. 26 (06 1971).Google Scholar
[21]Sharpe, William F. “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk.” Journal of Finance, Vol. 19 (09 1964).Google Scholar
[22]Stein, Jerome L. “The Simultaneous Determination of Spot and Futures Prices.” American Economic Review, Vol. 51 (12 1961).Google Scholar
[23]Stoll, Hans R. “Corporate Hedging in Futures Markets.” Working paper (06 1979).Google Scholar
[24]Telser, Lester. “Futures Trading and the Storage of Cotton and Wheat.” Journal of Political Economy, Vol. 66 (06 1958).CrossRefGoogle Scholar
[25]Telser, Lester. “Returns to Speculators: Telser vs. Keynes: Reply.” Journal of Political Economy, Vol. 68 (08 1960).Google Scholar
[26]Working, Holbrook. “Futures Trading and Hedging.” American Economic Review, Vol. 43 (06 1953).Google Scholar