Abstract
The question whether and under what conditions speculation is price stabilizing (or destabilizing) has long intrigued economists. An important subquestion is whether or not futures trading stabilizes the price of the commodity traded. The relationship between speculation in commodity futures and price variability is blurred, however, by several factors. Price discovery on commodity futures markets is the outcome of trading by both hedgers and speculators, and the relationship between speculation and price variability is, in part, indirect because it is hedgers who perform the relevant temporal allocations of stocks. Consequently, the problem for analysis is partly the extent to which speculation is necessary for hedging (see 4) . As a corollary, some observers argue that unnecessary speculation causes excessive price fluctuations. Both the indirect nature of the relationship and the vagueness of the allegations introduce problems of definitions and analysis, and little empirical evidence exists on the relationship between speculation in futures and price variability. One facet of price variability is the seasonal range, and an exceptional opportunity to measure the effects of futures trading on this dimension of price variation was provided by Public Law 85-839, which prohibited futures trading in onions. As a consequence, it became possible to measure the seasonal variability of onion prices before, during, and after futures trading (2; 3; 5). One conclusion from such studies was that future trading probably decreases intraseasonal price variability, at least for onions. This note provides an additional bit of similar evidence for wheat and simultaneously retrieves a piece of research published almost 50 years ago. James E. Boyle collected high and low prices for wheat in Chicago by months for the crop years 1841-1921 inclusive (1).1 This note summarizes one part of his results and adds one piece of analysis of these data. Futures trading in wheat developed in Chicago in the 1860s. Boyle takes the crop years 1871 and following as representative of the period with futures trading
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