Question

Under what condition futures price will be unbias predictor of expected spot price?

Under what condition futures price will be unbias predictor of expected spot price?

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Answer #1
  • The view of futures market is primarily a mechanisim for the short and long hedgers to offset their respective risks.
  • under this the expected spot price is only future price and it will not have any profit or loss.
  • The condition under which it will depend upon is whether future buyer are being compensated for taking price risk that the future seller are avoiding.
  • It is always assumed that the future transactions are dirven by natural short hedgers risk transcating with the long hedgers expected future price is equal to expected spot price.
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