The University of Iowa, Carnegie-Mellon University, and California Institute of Technology, respectively. Earlier versions of these results were presented at the Western Economic Association meeting in San Diego in June 1980 and at the World Congress meetings in Aix-en-Provence, France in September 1980. We thank those audiences for useful comments and discussion. We would also like to thank Forrest D. Nelson for his helpful suggestions.
Futures Markets and Informational Efficiency: A Laboratory Examination
Article first published online: 30 APR 2012
1984 The American Finance Association
The Journal of Finance
Volume 39, Issue 4, pages 955–981, September 1984
How to Cite
FORSYTHE, R., PALFREY, T. R. and PLOTT, C. R. (1984), Futures Markets and Informational Efficiency: A Laboratory Examination. The Journal of Finance, 39: 955–981. doi: 10.1111/j.1540-6261.1984.tb03887.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
Through the use of laboratory market methodology, the effect of a futures market on the time path of asset prices is studied and competing models of asset pricing are analyzed. With replication of market conditions, the predictions of a rational expectations equilibrium model are relatively accurate whether or not futures markets are present. However, the presence of futures markets increases the speed with which an efficient equilibrium is achieved. While this more rapid adjustment can increase the variance of spot market prices as they move to equilibrium, this increased variance reflects efficiency gains due to better information.