Do futures markets have a stabilizing or destabilizing effect on commodity prices? Empirical evidence is inconclusive. We try to resolve this question by means of a learning-to-forecast experiment in which a futures market and a spot market are coupled. The spot market exhibits negative feedback between forecasts and prices, while the futures market is of the positive feedback type, which makes it susceptible to bubbles and crashes. The coupling depends positively on the number of speculators on the futures market and negatively on storage prices, speculator risk aversion, and the volatility of futures prices. Our main result is that the spot price volatility changes non-monotonically with the strength of the coupling, resulting in a stabilizing effect on spot prices for weakly coupled markets and a destabilizing effect when the coupling with the futures market is strong.
Work in progress
"Can selection effects prevent bank runs?"
- Bounded Rationality (MSc level, 2017), lecturer
- Probability Theory and Statistics 3 (BSc level, 2017-2018), teaching assistent
- Theory of Markets (MSc level, 2017), teaching assistent
- General Equilibrium Theory (MSc level, 2018), teaching assistent
- Microeconomics (BSc level, 2016), teaching assistent