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Hedging and Speculation: A Discussion on the Economic Role of Commodity Futures Markets (Including the Oil Markets)

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Perspectives on Energy Risk

Abstract

In the United States, there is a rich historical experience with controversies over futures trading that date back to the nineteenth century. After a brief recounting of history, this chapter notes that a review of U.S. history provides valuable lessons in figuring out what is necessary for commodity futures trading (including oil trading) to continue and prosper during times of political pressure. Essentially, one finds that the following actions have been indispensable in responding to past controversies over futures trading: (1) an increase in transparency in showing how these markets actually work; and (2) an improvement in public education on the economic usefulness of commodity markets. This chapter endeavors to help in providing precisely that education.

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Notes

  1. 1.

    “Spare capacity refers to production capacity less actual production; it quantifies the possible increase in supply in the short-term,” explains Khan (2008).

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Acknowledgements

The information contained in this chapter has been assembled from sources believed to be reliable, but is not guaranteed by the author.

Research assistance from Katherine Farren, CAIA, of Premia Risk Consultancy, Inc. is gratefully acknowledged.

The author would like to thank Hendrik Schwarz for past insights and comments that were helpful in the development of this chapter.

Please note, though, that the ideas and opinions expressed in this chapter are the sole responsibility of the author. As such, the views expressed in this paper do not necessarily reflect those of organizations with which the author is affiliated.

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Authors and Affiliations

  1. EDHEC-Risk Institute and Principal, Premia Risk Consultancy, Inc., 53 W. Jackson Blvd., Suite 623, Chicago, IL, 60604, USA

    Hilary Till

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  1. Hilary Till
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Correspondence to Hilary Till .

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Editors and Affiliations

  1. Department of Finance, VU University Amsterdam, Amsterdam, The Netherlands

    André Dorsman

  2. Department of Finance, DePaul University Driehaus, College of Business, Chicago, Illinois, USA

    Timur Gök

  3. Business Administration, Hacettepe University, Ankara, Turkey

    Mehmet Baha Karan

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Till, H. (2014). Hedging and Speculation: A Discussion on the Economic Role of Commodity Futures Markets (Including the Oil Markets). In: Dorsman, A., Gök, T., Karan, M. (eds) Perspectives on Energy Risk. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-41596-8_9

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  • DOI: https://doi.org/10.1007/978-3-642-41596-8_9

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  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-642-41595-1

  • Online ISBN: 978-3-642-41596-8

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