Narrow Results

As the international financial marketplace has evolved to encompass a wide range of tradable asset classes, tensions between classical investment theory, trading practices, and government regulations have grown. This chapter will map the history of modern trading, taking a close look at the products, venues, and technological underpinnings of today's futures markets. It will focus on high-frequency trading, assessing the varying roles and needs of investment elites, market makers, regulators, and the public in maintaining clean and orderly market mechanisms. Key questions include the role of market participants, hedgers, speculators, and arbitrageurs in high-frequency trading and price discovery, their influence over fluctuations in financial stability, and the implications for the financial system as a whole. The chapter will conclude with a look ahead in terms of the regulatory activities that will shape these mechanisms in the years to come, with comments on market microstructure, the provision of liquidity, and innovation in futures markets around the world.

This chapter describes forwards and futures for electricity currently traded in Europe and other markets. Due to the non-storability of electricity, spot prices are highly dependent on local supply and demand conditions, business activity, and weather conditions. Seasonality is also very strong during the day (peak versus off-peak hours), during the week, and during cold and hot seasons. As a consequence, liquidity is low and the day-to-day volatility is much higher than in financial markets. Electricity futures and forwards may help generators, consumers, and marketers to manage volatility, but they also introduce risks of their own. The vast literature shows the elusive behavior of the so-called risk premia. We evaluate the ex post performance of monthly base load futures contracts on the Italian market in 2008–2013.We propose and test a linear approximation of the risk premium with respect to the time to maturity.