Stewart Mayhew, The Impact of Derivatives on Cash Markets: What Have We Learned?

Department of Banking and Finance, Terry College of Business, University of Georgia, 2000

Seite 4:

"Friedman’s (1953) implicit suggestion that profitable speculation ought to stabilize prices, later

dubbed «Friedman’s proposition», inspired a new wave of attempts to demonstrate the contrary -

that speculative trading can simultaneously be profitable and destabilize markets. This line of

research soon transformed into an formal investigation of the conditions under which Friedman’s

proposition holds. This literature includes papers by Stein (1961), Baumol (1957), Telser (1959),

Kemp (1963), Farrell (1966), Schimmler (1973), Jesse and Radcliffe (1981) and Hart and Kreps


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"Farrell (1966) demonstrated that if demand is intertemporally independent and linear, then whenever speculators are making profits, they are stabilizing prices. In addition, speculators may stabilize prices even if they are making losses, as long as their losses are not too large. However, if demand is not linear, then profitable speculation may be destabilizing. Schimmler (1973) showed that this result  does not in fact require the independent assumption."