Financial innovation and market volatility

Author: (USA) Miller M.
Publisher:
Publish Date: 2002-02-01
Features: As far as I know, this series of books is the first attempt to systematically publish the important works of all laureates. The publication of the series itself holds great significance, and its release in China is even more profound. I hope its publication will not only contribute to the development of economics but also directly promote the development of China's economy. [Swedish] Nobel Memorial Prize in Economic Sciences Committee — Torsten Persson
The commercial nature of futures exchanges, particularly their efforts to maintain competitiveness for survival, will be the theme that runs through and connects every paper in this book. The "financial innovation" mentioned in the title of this book refers to various competitive new products. In essence, the motivation for their creation and the methods of trading (including the extensive market research conducted in the industry) are identical in all respects to those of more familiar products. The "market volatility" mentioned in the title of the book is, in fact, merely a banner. Under this banner, stock retail brokers and other stock index futures competitors strive to maintain their competitive positions, primarily by seeking support from Congress, followed by the Securities and Exchange Commission and the Treasury Department. The second theme of this book (and also its organizational center) is the stock market crash on October 19 and 20, 1987. Although the main theme article "Financial Innovation and Market Volatility" (Chapter 3) clearly indicates that this book will describe catastrophic events, the three chapters in this section record content before the stock market crash. This section analyzes the process of the emergence of financial innovation itself, particularly the emergence of financial futures (which may be the most important part of financial innovation), as well as speculations on why so many financial innovation products emerged in such a short 20-year period. The paper "Liquidity and Market Structure" is excerpted from an article co-authored with Sanford Grossman (now at the Wharton School). This article laid the basic framework for the direct supply and demand theory, which is presented in various forms in the subsequent chapters of this book.