A on cash markets, in particular the effect on the volatility of prices in the underlying markets. Numerous empirical analyses of this issue have been published, first for agricultural futures and more recently involving financial futures. While these studies are quite diverse in terms of their definitions of price volatility, bases for attributing causality and statistical techniques, their findings are virtually unanimous that futures trading has not adversely affected cash markets and, in some cases, has improved the performance of the underlying markets.
The examination by Stephen Figlewski (1981) of the effects of futures trading on the GNMA cash market is an exception to these conclusions. Figlewski (p. 455) states that his regression evidence, based on data from the commencement of GNMA futures trading in October 1975 through February 1979, "points to the conclusion that futures trading in GNMA securities has led to increased price volatility in the GNMA cash market." Figlewski bases his conclusion on regression results which indicate that increased futures market activity has caused increases in a monthly measure of cash market volatility.
In this examination of the effects of futures trading on the volatility of the GNMA The opinions expressed in this article are those of the authors and do not necessarily reflect those of the The authors gratefully acknowledge Margaret Burke and David Borowski for extensive computational assistance.
Commission or its staff.