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Although one of the side effects of speculation is that price volatility should be reduced.
by timthorn 15y ago
Although one of the side effects of speculation is that price volatility should be reduced.
- yummyfajitas 15y agoAlthough that is usually a side effect of speculation [1], it does not preclude speculation causing the occasional sudden price move. For instance, if speculators believe there will be scarcity in 3 months (which starts gradually), the futures price will spike now. This will incentivize people to reduce consumption now, rather than when the scarcity actually manifests itself. Of course, reduced consumption now leads to greater availability later. If we had no speculators, we'd continue overconsuming until it was too late, but there would be no sudden jump in prices. [1] The best test case is onions vs other goods, since futures contracts for onions are illegal. http://resolutedetermination.wordpress.com/2011/05/07/oil-price-speculators-onions/ http://resolutedetermination.wordpress.com/2011/05/07/oil-pr...