(De)stabilizing Speculation on Futures Markets : an Alternative View Point

by Jean-Charles Rochet and Roger Guesnerie

European Economic Review Volumen 37, Issue 5, pages 1043-1063. 1993.


This paper offers a new interpretation for possible destabilizing effects of opening futures markets. In our model, adapted from Stein (1987), speculation on futures markets reduces the likelihood of occurrence of a Rational Expectations Equilibrium. Although the equilibrium price is less volatile after the futures market is opened (which is usually viewed as a stabilizing effect), traders may find it more difficult or even impossible to coordinate their expectations in order to implement this equilibrium.