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The Impact Of Derivatives On Market Functioning

Author

Listed:
  • Assoc. Prof. Roxana Angela Calistru Ph. D, Assoc. Prof. Carmen Costuleanu Ph. D

    (University “Petre Andrei” of Iaşi Faculty of Economics Iaşi, Romania)

Abstract

Derivatives were initially a response to the increased volatility of financial markets, but then the growth of financial derivatives has played a role in exacerbating shocks. Hence, implications of derivatives for the functioning of financial markets may differ between normal and crisis conditions. In normal market conditions, derivative markets perform a number of economic functions likely to help in discovery of future as well as current prices, to improve risk-sharing, to enhance the liquidity and efficiency in the market for the underlying asset etc. Given their leverage and low transactions costs, derivatives facilitate the taking of speculative positions and can assist uninformed investors in taking market positions, which could finally reinforce markets fall. In times of stress, they may increase the valuation uncertainties which inevitably arise in such periods.

Suggested Citation

  • Assoc. Prof. Roxana Angela Calistru Ph. D, Assoc. Prof. Carmen Costuleanu Ph. D, 2011. "The Impact Of Derivatives On Market Functioning," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, vol. 4(39), pages 138-141, May.
    • Handle: RePEc:aio:aucsse:v:1:y:2011:i:4:p:138-141
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    File URL: http://feaa.ucv.ro/AUCSSE/0039v4-018.pdf
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    References listed on IDEAS

    as
    1. Paolo Savona & Aurelio Maccario & Chiara Oldani, 2000. "On Monetary Analysis of Derivatives," Open Economies Review, Springer, vol. 11(1), pages 149-175, August.
    2. Michele Fratianni & John Pattison, 2001. "Review Essay: The Bank for International Settlements: An Assessment of its Role in International Monetary and Financial Policy Coordination," Open Economies Review, Springer, vol. 12(2), pages 197-222, April.
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    More about this item

    Keywords

    derivatives; financial markets; risk-sharing; underlying asset; leverage;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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