Speculative Securities

21 Pages Posted: 12 Oct 2007

See all articles by Jose M. Marin

Jose M. Marin

Charles III University of Madrid

Rohit Rahi

London School of Economics - Department of Finance; London School of Economics & Political Science (LSE) - Financial Markets Group

Multiple version iconThere are 2 versions of this paper

Date Written: April 28, 1997

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 a poorer hedge against their endowment risks at the time of trade, 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.

JEL Classification: D82, G13, G14

Suggested Citation

Marin, Jose M. and Rahi, Rohit, Speculative Securities (April 28, 1997). Available at SSRN: https://ssrn.com/abstract=38221 or http://dx.doi.org/10.2139/ssrn.38221

Jose M. Marin (Contact Author)

Charles III University of Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

HOME PAGE: http://www.josemarin.com

Rohit Rahi

London School of Economics - Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 20 7955 7313 (Phone)

HOME PAGE: http://https://sites.google.com/lse.ac.uk/rohit-rahi

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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