OFOR Symposium: September, 1993

Research Frontiers in Futures and Options: An Exchange of Ideas; A Symposium in
Recognition of Thomas A. Hieronymus

On September 10, 1993, OFOR hosted a symposium at the Chicago Board of Trade, "Research Frontiers in Futures and Options: An Exchange of Ideas; A Symposium in Recognition of Thomas A. Hieronymus." Seven eminent scholars of futures markets presented papers. They were Thomas A. Hieronymus, Robert J. Hauser, and Virginia G. France, all of the University of Illinois, Urbana-Champaign; William P. Albrecht, University of Iowa and former CFTC commissioner; William G. Tomek, Cornell University; Todd E. Petzel, senior vice president, Chicago Mercantile Exchange; and Mark J. Powers, chief executive officer of Powers Research Associates, and editor of The Journal of Futures Markets. Each paper presentation was followed by a discussion. 

The papers first discussed the historical development of futures markets with recognition of the major role that Professor Hieronymus played in advancing these markets. Hieronymus was a pioneer in the study of commodity futures markets and the author of many early publications describing their practical use. The author of a seminal textbook on futures markets, he was a leading critic of regulatory processes. Professor Hieronymus's career also spans a period of exceptional growth in trading volume and many innovative research developments in futures markets.

Each of the seven papers used this rich history as background to assess the current status of the futures industry and then suggested future research agendas. Many of the research questions have not changed that much over time. There is still need for practical, relevant research on the important questions facing the industry. What has changed over time are the dynamics of the markets; types and styles of traders; new contracts and settlement procedures; options on futures; technology and telecommunications; regulatory procedures; and international linkages and competition-to name a few noteworthy developments. This period also has seen a merging of research topics and methodology in the agricultural economics and finance professions. 

The questions remaining seem timeless. However, concern is raised that a considerable amount of the current research in futures and options markets strays away from the important topics facing the industry and is performed more to satisfy methodological concerns than to advance basic, ground-breaking research. 

The suggested research topics fall into three areas:

Market Performance, Forward Pricing Efficiency, and Basis Behavior: How has basis behavior changed over time? What are appropriate contract specifications and delivery terms? How do different margins affect trader
behavior? What is the effect of trading funds and computers on prices and the flow of funds?

Risk Management: What are the appropriate hedging strategies-given changing market structures and firm integration? Are the new derivative instruments reasonable substitutes? What is the definition of hedging, and how should hedges be taxed? What contribution can a new futures market make to a developing country? 

Regulation: What are the proper boundaries for exchange, clearinghouse, and federal government regulatory authority? Should new off-exchange, over-the-counter derivatives be regulated, and if so, by whom? What is manipulation? What are the costs and benefits of regulation? Can futures substitute for grain-market price supports, and if so, how?

Researchers need to be innovative, relevant, and practical. There is no substitute for clear, careful thinking in applying economic theory and statistical methodology to understand problems facing the futures industry. Professor Hieronymus's research was characterized as being decisive and timely-still among today's relevant research goals.