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Futures market equilibrium under Knightian uncertainty

✍ Scribed by Donald Lien; Yaqin Wang

Publisher
John Wiley and Sons
Year
2003
Tongue
English
Weight
122 KB
Volume
23
Category
Article
ISSN
0270-7314

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✦ Synopsis

Abstract

This paper examines the effects of Knightian uncertainty on a commodity futures market within the
Newbery‐Stiglitz framework. It is shown that Knightian traders act more conservatively. In a partial
trade equilibrium, risk aversion and Knightian uncertainty have qualitatively similar effects on the equilibrium
price and the equilibrium trading volume. Full‐trade and no‐trade equilibria are likely to prevail
when the producer and the speculator incur different Knightian uncertainty. Herein different impacts of risk
aversion and Knightian uncertainty are observed. Β© 2003 Wiley Periodicals, Inc. Jrl Fut Mark
23:701–718, 2003

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