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Speculation, Profitability and Price Stability in Commodity Futures Markets

L. S. Venkataramanan
Economic and Political Weekly
Vol. 6, No. 18 (May 1, 1971), pp. 920-923
Stable URL: http://www.jstor.org/stable/4381948
Page Count: 4
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Speculation, Profitability and Price Stability in Commodity Futures Markets
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Abstract

Speculation and futures trading have been blamed for accentuating short-term price fluctuations, for aggravating the rising trend of prices in many commodities, and for contributing to market instability. Government and the Forward Markets Commission have, therefore, favoured serious restrictions on some futures markets and have banned the functioning of others. Yet it can be empirically shown that since speculators make profits by buying when prices are low and selling when prices are high, they reduce price variations through advance anticipatory actions as well as earn profits. This study of various futures commodity markets found that profits were made by both big and small traders on their long positions, invariably over each futures contract, in most commodities. Thus, the tendency for the futures price to rise over the period of the contract and for profits to accrue to those who maintain the long position is empirically demonstrated. The study, therefore, questions the restrictive role Government has been playing in these markets.

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