Futures trading stabilizes UK short-term interest rates, lowering market risk.
The article examines how futures trading affects short-term interest rates in the UK. By using a new statistical model, the researchers found that after futures trading began, volatility in interest rates changed, with evidence of prices returning to their average. The flow of information into the market improved, and futures trading helped stabilize the cash market by reducing risk. Positive shocks had a bigger impact on volatility than negative shocks.