Decision Sciences
4 years ago

Spot Market Acts as Safety Net in Face of Forward Market Risks

1 view
SSRN Electronic Journal
Non-Performance Risk and Transaction Costs in Laboratory Forward and Spot Markets
Alla V. Yakunina, Dale J. Menkhaus, Owen R. Phillips, Victor E. Esipov

Paper Summary

Traders in markets with a risk of contracts not being fulfilled may switch to spot auctions as a safety net. In lab tests, spot markets step in when forward contracts fail, especially when transaction costs rise. A small increase in costs can lead to a big shift to spot markets. If institutions can't enforce forward contracts, spot markets are crucial for trade to continue.

Related papers

Economics, Econometrics and Finance
4 years ago

New study reveals how contracts impact spot market prices dramatically.

Market Dynamics
Telecommunications
Two-Sided Markets
Business, Management and Accounting
4 years ago

Transaction costs lead to higher prices and less competition in markets.

Risk Management
Banking Finance
Insurance Dynamics
Economics, Econometrics and Finance
6 years ago

Optimal transaction costs ensure smooth market operations and increased profits.

Asset Pricing
Option Pricing
Monetary Models