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Speculative securities
Marín, José M.; Rahi, Rohit
Universitat Pompeu Fabra. Departament d'Economia i Empresa
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 a poorer hedge against their endowment risks as the time oftrade, and has an associated adverse selection cost. In the specific institutional setting of innovation of futures contracts, we show that a futures exchange may not have an incentive to introduce a speculative security even when all traders favor it.
2005-09-15
Finance and Accounting
information revelation
sunspots
security design
futures contract
trading volume
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http://creativecommons.org/licenses/by-nc-nd/3.0/es/
Working Paper
         

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