Fun facts

Discussion in 'Today's Daily Questions' started by Aleksander Hansen, Jul 8, 2012.

  1. Aleksander Hansen

    Aleksander Hansen Well-Known Member

    I'll take the liberty of posting some fun facts:

    1) There is one commodity that is banned by law from trading (futures, forwards, derivatives).
    • Which one?
    • Why?
    • What has the result been?
    • Why did it result in this?

    2) A "puzzle" has long persisted in economics/finance and many ave tried to explain it. Interestingly, due to the past few years, this "puzzle" actually no longer exist. Which puzzle am I talking about?
    Do you think it is a real puzzle/phenomenon?

    David, Suzanne: Feel free to move post to more appropriate forum section.
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  2. rana

    rana New Member

    1) Agriculture commodity option (started again from 1984)
    2) Equity premium puzzlee
  3. aadityafrm

    aadityafrm New Member

    Hi Alek,

    My ans would be Onion Futures, the only commodity for which future trading is banned by law (Onion Futures act of August 1958) and it still remains in effect to this day. This came into being due to a reported price manipulation attempted by two traders at CME. Subsequently, onion growers perceived that futures traders were responsible for such high volatility in onion prices, so they lobbied to push through a law banning all futures trading in onions.

    However, the past trend has been quite the contrary. There has been more volatility observed in the onion prices since the ban.

    On the second , will go with rana. ERP has been the conundrum for economists/financial experts since long. but not sure what you mean by "this "puzzle" actually no longer exist". As far as i know this puzzles still stands unresolved as no convincing explanation is present till date. Can you point me to any relevant sources?....
  4. Hend Abuenein

    Hend Abuenein Active Member

    @Aleksander Thank you for this post. I enjoy this kind of information.

    Hi Rana, would you mind explaining what you mean by the Equity Premium Puzzle?
    Thank you
  5. Aleksander Hansen

    Aleksander Hansen Well-Known Member

    Rana, that is correct.
    in particular aadityfrm's onion answer was what I was looking for.

    Equity premium puzzle is also correct, that is, historically one has observed excess return from stocks over bond, whilst the standard asset pricing models would call for the returns to be equivalent when we look at them on a risk-adjusted basis. Following the downturn of recent years, this premium has disappeared, which is why I ask whether this is really a real puzzle/phenomena. Scientifically, it is most certainly not as the answer is fully dependent on a starting and stopping time which is fully subjective and cannot be solved for using traditional optimal stopping time tools such as the Belmlan equation. The probabilistic nature is very much subjective and can better be approach by Baysian statistics in a shorter trading-time frame.
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