Showing papers in "The Review of Economic Studies in 1960"

The Theory of Hedging and Speculation in Commodity Futures

Abstract: Although significant contributions have appeared in the literature in recent years, the present day theory of hedging and speculation appears to account inadequately for certain market practices. In particular, the motivation of the trader who undertakes hedging activities, the role that hedging plays in his over-all market operations, and the distinction between a trader who hedges and one who speculates have given rise to difficulties in the literature. My purposes here are (1) to outline briefly the purposes and mechanics of a commodity futures market, (2) to discuss and appraise the theory of hedging and speculation as it exists today, (3) to present a reformulated concept of hedging, and (4) to construct a model that may both assist in clarifying the concepts of hedging and speculation and contribute to a better understanding of certain market phenomena.

On the invariance of demand for cash and other assets

Abstract: If the stock of cash held currently by an individual trader is defined to be the sum of his net receipts in previous periods plus some arbitrary initial balance, and if fiat money is the only asset that traders can carry over from one market period to another, then as Messrs Archibald and Lipsey have recently demonstrated,2 the trader’s equilibrium demand for real cash balances is independent of the general price level and of initial balances and is governed instead by tastes and real income.3 It is not clear, however, whether this result is valid in a model where money balances may be used to purchase and hold income-earning assets. If an individual can buy and sell bonds, for example, he can presumably effect a permanent change in his real income by substituting bonds for cash in his asset portfolio. Under these circumstances, real income is a variable rather than a parameter and the invariance of equilibrium real balances against a change in nominal money stocks or in the general price level would seem to be endangered.