The Contribution of Speculators to Effective Financial Markets
Catalyst Institute Monograph Series
Posted: 13 Feb 1997
Date Written: Undated
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: Suggested Citation