Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

Abstract: Commodity prices are significantly more volatile than prices of industrial products. This extreme price instability establishes a need for futures markets in commodities. The main functions of futures trading being hedging against, and speculation on price fluctuations; and it is hedging, that determines the role of speculation.

Keywords: commodity price instability; futures markets; futures prices; marking to markets; arbitrage-hedging; hedging; speculation; normal backwardation)

JEL-codes: Q00 July 2002

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