Speculators Manage Risk

In defense of speculation. OpEd piece in the NY Times yesterday by two Illinois profs:

Efforts to rein in supposedly damaging speculation have run the gamut from requiring futures exchanges to raise margins to an outright ban on trading. But there is no historical evidence that politically inspired increases in futures margins — or other attempts to limit futures trade — have been effective at lowering overall prices. The only consistently documented impact of higher margin requirements has been a decline in futures trading volume.

Current legislative proposals might similarly curtail speculation by reducing the volume of trade, but it is unlikely that they would cure the “problem” of high prices. The measures, however, are likely to hurt the ability of futures markets to accommodate businesses that need to manage price risks.

Economist J.D. Foster at the Heritage Foundation, "Oil Speculators: A Marginal (at Best) Cause of High Energy Prices.

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