Question

The spot price of an asset is positively correlated with the market (i.e. it has a...

The spot price of an asset is positively correlated with the market (i.e. it has a positive beta). Would the expected future spot price be higher, lower or the same as the futures price? Why?

Homework Answers

Answer #1

Ans: Actually the thing is when the spot price of any assets actually is positively correlated with the market in other way the spot price of an assets is having positive beta then in that case the expected future spot price will actually be higher than the future prices, reason being is simple that spot future price will actually give a return greater than the risk free rate of return but the forward/future price is actually nothing but the price which is actually grossed up at the risk free rate. hence we can say safely that the expected future spot price will actually be higher than the future prices.

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