Well Chris, Take a look at the article below.
http://www.rice.edu/projects/baker/Pubs/studies/caspian/iedcom/iedcom.html It is entitled: "The Impact of Energy Derivatives on the Crude Oil Market" In their conclusion, the authors claim: "Our findings regarding the relation between futures trading activity and spot market volatility indicate that deep and liquid futures markets have a mitigating effect on volatility in the underlying market. We find a positive relation between futures volume and volatility, but we cannot determine the marginal impact of futures versus spot market volume because reliable spot volume data are unavailable. The relation between open interest and volatility, on the other hand, is large and negative. We find that the impact of volume on volatility is inversely related to both the unexpected change and long-term predictable component of open interest. Our estimates indicate that the volatility increase associated with an unexpected increase in volume is approximately 40% lower when accompanied by an unexpected increase in open interest than when the unexpected change in open interest is zero. These findings suggest that futures trading improves depth and liquidity in the underlying market, and they contradict the idea that derivatives destabilize the market." If you read the article, you will see that they have all the good statistical results to support this conclusion. Does this make us agree with them? I looked at the New Scientist article you sent and there was not even a single result there, apart from an obscure graph. On what basis can I now accept that pound and euro behave as if they are the same currency? Not that I disagree with that Euro is a major trading currency and that many major European currencies and term structures have coverged to Euro and the Euro term structure, respectively, except possibly from those of Italy, when I looked at them the last time. Don't know about the UK though. It has been a few years. Best, Sabri
