Comments on: Ignoring Hotelling, Ignoring Standard Macroeconomics

By: Jack PQ

Jack PQ — Mon, 19 Jan 2015 15:48:35 +0000

1. You are correct, and the Hotelling view is actually the mainstream cost-of-carry model: F(t,T) = S(t) exp( (r+w) (T-t) ). The link between futures and spot is entirely determined by interest rate, r, and cost of storage, w (throw in convenience yield if you want). Convenience yield explains (but does it really?) why futures prices can be lower than spot prices.

2. Futures prices are not today’s expectation of prices in the future. They are price expectations under the risk-neutral probability measure, so they reflect both true expectations and risk premia. Disentangling the two is difficult.

By: A

Sat, 17 Jan 2015 03:59:09 +0000

The authors seemed to limit their views on stimulative lower oil prices to a ceteris paribus, supply driven decline. The last section then includes the context of weak aggregate demand indicated by a zero lower bound. The collapse in nominal expectations, supported by monetary ineffectiveness, makes temporary the real income and profit boosts.

By: John Hall

John Hall — Fri, 16 Jan 2015 17:16:03 +0000

The arbitrage is throughout financial markets too. People use currency forward rates as predictors of where currencies will go, when the value of the forward is driven entirely by an arbitrage of the spot value and different interest rates.