耶鲁大学金融市场英文文本FinancialMarketsLecture22Transcript.docx

耶鲁大学金融市场英文文本FinancialMarketsLecture22Transcript.docx

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耶鲁大学金融市场英文文本FinancialMarketsLecture22Transcript

FinancialMarkets:

Lecture22Transcript

ProfessorRobertShiller:

Firstthing,Iwantedjustto--Iforgottoshow--Idon'tknowhowexcitingthisis,butthisisatickertape.Theyweren'tbrown.Thistapeisaboutahalf-centuryold.ItcamefromtheatticoftheNewYorkStockExchange.WhenIwasataconferencethereayearago,ImentionedtothevicepresidenttherethatIhadtoldmyclassabouttickertapemachinesandtheyhadneverheardofthem--didn'tknowwhattheywere;well,atleastsomeofthemhadn't.So,hesentmethis.Thiswasneverused,butnormallyitwouldgointoamachineanditwouldprintoutstockpricesattrades.

IwasgivingatalkyesterdayattheNewYorkStockExchangeandImethimagainandIsaid,thankyouforthis;myclasswashappytoseeit.Hesaid,wellIcouldhavegivenyouawholetickertapemachine.Hesaid,welltheatticattheNewYorkStockExchangewasfilledwiththem,buttheyfinallythrewthemout,soit'stoolate.Ithinkitis--thisisevidencethatinformationtechnologyreallyhasdominatedstockprices.Wedidn'treallyhaveactivestockmarketsbeforetheelectronicage,whichisaninterestingthingtothinkaboutbecausethetickertapemachinewasinventedbyEdisonin1867.In1867,therewerehardlyany--therewerestockmarkets,buttheywereverysmall.Itwasreallytheelectroniccommunicationsthatmadeitwhatitis.It'sexcitingtothinkaboutthefutureandwhereelectroniccommunicationisgoingtotakemarketsgoingforward.

Iwantedtocontinuetodayaboutourfuturesmarkets.Letmejuststepbackandthink,whatisafuturesmarket?

Today,I'mgoingtotalkabouthowithasexpandedtocoverlotsofotherthings,notablyfinancialinstruments.Let'sjustthink,whatisafuturesmarket?

IfyoureadHolbrookWorking,who'sonyourreadinglist,andhishalf-centuryoldpaper,backinthosedaysthathewaswriting,hesaysthatthename"futures"isabitmisleadingbecausethatsuggeststhatit'stalkingaboutthefutureratherthantoday.Ifyoulistentothenewsaboutanycommodityprice,it'salwaystalkingaboutfuturesprice.Theydon'ttalkaboutthepricetoday.Thefuturespriceistheinteresting--thepointthatWorkingmadeisnotsomuchthatit'sinthefutureisthatit'swell-definedandstandardized.Foragriculturalfutures,it'struethatthecontractdoesn'tmatureforamonthorso,butasWorkingpointsout,anycontractfordeliveryofsomethinghassometerm.Theydon'tjustdeliveritinstantlyandWorkingsays,therearetimeswhentheso-calledspotpriceisactuallyfurtherinthefuturethanthefuturesprice.

Ifyoulookatthewaythingsaretraded--I'mgoingtobetalkingalotaboutoil,butletmejusttalkgenerallyaboutoil.Whatisthepriceofoilandhowdoesanybodyknowwhatitis?

Ifyougotopeoplewhobuyandselloil,theywilltellyou,wellwedon'tjustselloil;wedon'tjusthaveitreadytogo.Almostalloftheoilissoldinlong-termcontracts,soanoilcompanywillsellacontracttodeliverregularlytosomerefinery,oil.They'llhavethesetankersappearandwesignafive-yearcontract--orwhatever--andithasallkindsofterms.Ifyoureadthecontractitwouldbefiftypageslonganditwouldspecifyallkindsof"whatwe'lldoifwedon'tdeliver"or"whathappensifwecan'tdeliverthegradewepromised."Lotsofuncertaintiesaredefined,sowhoknowswhatthepriceofoiliswhenit'sbeingpartofalong-termcontract.That'swhyyouneedafuturesmarketandthefuturesmarketisthemarketthat'sfreeof--ithasastandardizedcontract.

Weknowexactlywhatthepricemeansandattentionfocusesonthefuturesmarketbecausethetradethereis--everybodyunderstandsit;everyoneknowsexactlywhat'sbeingtraded.Theminute-to-minutechangesreflectsomething;theyreflectsomethingreal,namelychangeinthemarketnotanychangeinwhat'sbeingdelivered.Anyway,itusedtobethattheonlyfuturesmarketswereforcommodities--forthings--typicallyitwasthoughtthatfuturesmarketsaregoodtohaveforthingsthatarenotstandardized--thataredifficulttodefine.So,wewantricefuturesandwewantwheatfuturesbecausetherearesomanydifferentkindsofriceindifferentareasanddifferent--so,wewanttohaveastandardizedprice.

Therewerenofinancialfuturesuntilthe1970sandpeoplefeltbackthenthatwedon'tneedfuturescontractsbecausethere'sastandardizationofshares.Everyshareinagivencompanyisexactlyidentical.Whenyousay,I'dliketobuyahundredsharesofacompany,you'renotgoingtoaskthebroker,wellwhichsharesdidIget?

AndcanIlookatthem?

Yourbrokerwouldsayindisbelief,lookyou'vegotshares;they'reallabsolutelyidentical.Youmightthinkthere'snoneedforafuturesmarketbecausethepricesarealreadystandardizedinthecashmarket.Moreover,thepricesthatyouseetradedonthestockexchangefloor--youknowexactlywhenthetradetookplace;they'renotfuture-traded.

Whydidwegetfuturesmarkets?

Letmecomebacktothat.Letmejustfirst--whydidwegetstockfuturesmarkets?

Letmecomebacktothatandtalkabout--let'sbeclearwhattheyare.Stockindexfuturesmarketscameinaround1980andoneoftheveryfirstwastheStandard&Poor500StockIndexFuturesMarkettradedattheChicagoMercantileExchange.Itwasaradicalinnovationwhenitcameinbecausepeoplethought,what'sthepoint?

Icanseefarmersdeliveringtheircornortheiroatsorwhatever,butstocks--what'sthepoint?

Well,itturnedouttobeabsolutelyrightbecause--theCMEwasabsolutelyrighttocreatethismarketbecause--withinafewyears,therewasmoretradeonthefuturesmarketthantherewasonthestockmarketitself.

Let'sbeclearwhattheycreated--andthisisthetermsofthecontractasitistoday.TheS&P500isanindexofstockpricesproducedbyStandard&Poor'sCorporationandit's--theytakethepricesof500stocksandtheyformaweightedaverage.It'sanarithmeticaveragewheretheweightscorrespondtotheamountsoutstandingofthevariousstocks,soit'savalue-weightedindex.It'sjustanumberpublishedbytheAmericanStockExchange--no,byStandard&Poor's.Allitisat--justaswithagriculturalfutures--Idon'tknowhowclearIwasaboutthisyesterday.Ifyou--maybeIdidn'tsaythis.Letmesaythatitappliestobothagriculturalfuturesandfinancialfutures.

Ifyouwanttotradeinthefuturesmarket,youhavetoputupmarginandthere'samarginrequirementforeachcontract.Themarginistheretoeliminatecounterpartyriskwithothercontracts.Whenyousignacontractwithanotherpersonyouhavetoworrywhetherthatpersonwillcomethrough,butwiththeexchangethatcounterpartyriskiseliminated.Thewaytheexchangeeliminatesitisittakestheothersideitself--ofeverycontractwho--itstandsbetweenyouandthecounterpartyanditprotectsitselfbydemandingmargin.Youhaveto,upfront,putupmarginforanyfuturescontractandthemarginissettleddaily.Everyday,theylookatyourmarginaccountandtheyadjustit.So,if--letmegobacktowheatfuturesbecausethat'sthesimpler--Idon'tthinkIreallyexplainedthiswell.Ifyoubuy--whenwesay"buywheatfutures,"whatdoesthatmean?

Thatmeans--thewordbuyorsellhasadifferentmeaninginfuturesmarkets.Whenyoubuywheatfuturesor,forthatmatter,S&P500infutures,itmeansthatyouputupmargin.Youdidnotpaythepriceforthecontract;youonlypaidmargin,whichmightbe5%orlessthantheprice.

Ifyou'rebuyingwheatfutures,whatareyoudoing?

You'reputtingupmarginandstandingreadytoseeyourmarginaccountcreditedordebiteddependingonthechangeinthefuturespricefromdaytoday.Ifthepriceofwheatinthefuturesmarketgoesupandyouboughtfutures,theywillincreaseyourmarginaccountbytheamountthatitwentup.Ifthepriceofwheatgoesdown,theywilldecreaseyourmarginaccountbalancebythatamount.Howdotheygetthemoney?

Well,that'sbecauseforeverybuyerthere'sasellerinthefuturesmarket,sosomebodyelsesoldfutures.Bothofyouputupmargin;ifyouarebuying,youputupmargin;ifyouareselling,youputupmargin.So,theresultisthattheyhaveaplacetogetthemoney.Ifthepricegoesupandyoubought,yourmarginaccountwillgoup.Theexchangewillgetthemoneybytakingitfromthemarginaccountoftheguywhosoldandthey'vealwaysfixeditsothatthenumberofbuyersalwaysequalsthenumberofsellers.Youseehowtheexchangecan'tloseandyoucan'tlose;thisisaguaranteedthing.

Theonlyproblemisthatwhatifamarginaccountrunsdry?

Bothbuyerandsellerhaveputupmarginandthentheprice--let'ssaythepricedropsalot;thefuturespricedropsalot.Then,thatmeansthatthebuyer'smarginaccountiswipedout.Whatwillhappenthenisthatthefuturescommissionmerchantwillgotothepersonwhoboughtthefuturesandsay,doyouwanttopostmoremarginordoyouwantmetocloseyouout?

Thatpersonhasadecisiontomakeandifheorsheputsupmoremargin,thenthatreplenishesthemarginaccountandthepersoncankeeptrading.That'showtheexchangeseliminatecounterpartyrisk,bydailyresettlementofthecontracts.

It'saninvention--actuallygoesbacktoJapan;although,itwasslightlydifferentinform.It'saninventionthateliminatesanyriskofthecounterpartynotperformingsothatriskdoesn'taffectprice.Soit'sthesame--areyouclearonthatnow--howthemarginaccountworks?

Youmightnotenjoythis.Dependsonhowmuchofagamblinginstinctforhowmuchfunthisis.Ifyoubuyorsellfutures,youcanexpectaphonecallfromyourbrokersoonerorlater;well,not