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Risk, Speculation, and OTC Derivatives: An Inaugural Essay for Convivium

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  • Stout Lynn A.

    (University of California, Los Angeles)

Abstract

Speculative trading, including speculative trading in derivatives, is often claimed to provide social benefits by decreasing risk and improving the accuracy of market prices. This assumption overlooks the possibility that speculation can be driven not just by differences in traders' risk aversion and information investments, but also by differences in traders' subjective expectations. Disagreement-based speculation erodes traders' returns, increases traders' risks, and can distort market prices. There is reason to believe that by 2008, the market for OTC derivatives may have been dominated by disagreement-based speculation that contributed to the Fall 2008 credit crisis.

Suggested Citation

  • Stout Lynn A., 2011. "Risk, Speculation, and OTC Derivatives: An Inaugural Essay for Convivium," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 1(1), pages 1-15, January.
    • Handle: RePEc:bpj:aelcon:v:1:y:2011:i:1:n:2
    DOI: 10.2202/2152-2820.1004
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    Cited by:

    1. repec:dau:papers:123456789/14980 is not listed on IDEAS
    2. Vivian, Andrew & Wohar, Mark E., 2012. "Commodity volatility breaks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(2), pages 395-422.
    3. Autenne Alexia & Biondi Yuri & Cavalier Georges & Cotiga-Raccah Andra & Doralt Peter & Haslam Colin & Horak Hana & Malberti Corrado & Philippe Denis & Sergakis Konstantinos & Schmidt Jessica, 2018. "The Current Challenges for EU Company and Financial Law and Regulation," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 8(3), pages 1-12, December.
    4. Carruthers Bruce G., 2015. "Isabelle Huault and Christelle Richard: Regulation Writ Large: A Comment on Huault and Richard’ “The Discreet Regulator”," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 5(2), pages 227-232, July.
    5. Creti, Anna & Joëts, Marc & Mignon, Valérie, 2013. "On the links between stock and commodity markets' volatility," Energy Economics, Elsevier, vol. 37(C), pages 16-28.
    6. Keren Naa Abeka Arthur, 2017. "Financial innovation and its governance: Cases of two major innovations in the financial sector," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 3(1), pages 1-12, December.
    7. Fantacci Luca, 2013. "Why Banks Do What They Do. How the Monetary System Affects Banking Activity," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 3(3), pages 333-356, November.
    8. Naoise McDonagh, 2021. "Credit Guidance for a Desired Economy: An Original Institutional Economics Critique of Financialization," Review of Radical Political Economics, Union for Radical Political Economics, vol. 53(4), pages 675-693, December.
    9. Stout Lynn A., 2012. "New Thinking on "Shareholder Primacy"," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 2(2), pages 1-24, June.
    10. Stout, Lynn & Library, Cornell, 2018. "New Thinking on "Shareholder Primacy"," LawArXiv fn2gu, Center for Open Science.
    11. Biondi Yuri, 2016. "Empowering Market-Based Finance: A Note on Bank Bailouts in the Aftermath of the North Atlantic Financial Crisis of 2007," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 6(1), pages 79-84, March.
    12. Yuri Biondi & Simone Righi, 2013. "What does the financial market pricing do? A simulation analysis with a view to systemic volatility, exuberance and vagary," Papers 1312.7460, arXiv.org.
    13. Biondi Yuri, 2018. "Banking, Money and Credit: A Systemic Perspective," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 8(2), pages 1-26, July.
    14. Bavoso Vincenzo, 2017. "“High Quality Securitisation and EU Capital Markets Union – Is it Possible?”," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 7(3), pages 1-29, December.
    15. Yuri Biondi & Pierpaolo Giannoccolo, 2015. "Share price formation, market exuberance and financial stability under alternative accounting regimes," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(2), pages 333-362, October.

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