The Contribution of Speculators to Effective Financial Markets

Catalyst Institute Monograph Series

Posted: 13 Feb 1997

See all articles by Geert Bekaert

Geert Bekaert

Columbia Business School - Finance and Economics

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Marcio G. P. Garcia

Pontifical Catholic University - Department of Economics

Date Written: Undated

Abstract

We present critical examination of the role of the speculator in transitional market-based economies. Speculators provide additional liquidity to the market and, in general, enhance the operational efficiency of the market. This serves to reduce the cost of capital which has broad positive implications for the welfare of the whole society. However, we argue that the presence of speculators alone does not guarantee these benefits. Indeed, the presence of a small group of speculators may lead to a distortion of market prices. Hence, in order to ensure the positive benefits, there must exist a sufficient number of speculators =96 both domestic and international. Our policy recommendations focus on ways to obtain this critical mass.

JEL Classification: F32, 054

Suggested Citation

Bekaert, Geert and Harvey, Campbell R. and Garcia, Marcio G. P., The Contribution of Speculators to Effective Financial Markets (Undated). Catalyst Institute Monograph Series. Available at SSRN: https://ssrn.com/abstract=9514

Geert Bekaert

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Marcio G. P. Garcia (Contact Author)

Pontifical Catholic University - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil
(5521) 274 2797 or 294 5490 (Phone)
(5521) 294 2095 (Fax)

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