Speculative securities

Marín, José and Rahi, Rohit ORCID: 0000-0001-6887-9160 (1997) Speculative securities. Financial Markets Group Discussion Papers (268). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

A speculative security is an asset whose payoff depends on a random shock uncorrelated with economic fundamentals (a sunspot) about which some traders have superior information. In this paper we show that agents may find it desirable to trade such a security in spite of the fact that it is poorer hedge against their endowment risks at the time of the trade, and has an associated adverse selection cost. In the specific institutional setting innovation of futures contracts, we show that a futures exchange may not have an incentive to introduce a speculative security when all traders favour it.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 1997 The Authors
Divisions:	Finance
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
Date Deposited:	17 May 2023 11:09
Last Modified:	01 Apr 2024 08:00
URI:	http://eprints.lse.ac.uk/id/eprint/119175

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