Asymmetric Arbitage and Normal Backwardation

This paper provides a theoretical explanation for the existence of backwardation on the futures markets, based on Routhakker's work dealing with asymmetry of arbitrage on such markets. The central assumption of the paper is that cash and futures prices tend to be more highly correlated at low than at high cash prices. This assumption reflects the asymmetry in arbitrage opportunities in futures markets; in particular, at the maturity date of a futures contract, the futures price cannot exceed the cash price of any grade-location combination deliverable under the futures contract. The main result of the paper is a proposition that asserts that with identical long and short hedgers, with the same wheat commitments on both sides of the market, and with utility functions exhibiting constant or decreasing absolute risk aversion, if the probability density function over cash and futures prices is sufficiently concentrated at low cash prices, then the resulting market equilibrium will exhibit backwardation, that is, the current future price is a downward biased estimator of the future futures price as well as being a downward biased estimator of the future cash price

Pay and Performance in Baseball: Modeling Regulars, Reserves and Expansion

Although the relationship between pay and performance in baseball has been convincingly demonstrated by Scully, a number of unresolved questions remain. Using a large sample of player salaries from contracts on file at the American League office, new estimates of this relationship are reported. The primary findings are as follows. First, while Scully's basic results are qualitatively robust, the salary elasticities for various performance and experience variables are substantially lower for our sample and specification. Second, for most variables, recent performance, as well as career average, contributes to the explanation of salary differences. Third, expansion has a significant effect on salary structure, and, in our model, makes it statistically invalid to estimate a single salary equation from pooled time-series data that includes an expansion year

Asymmetric Arbitage and Normal Backwardation

This paper provides a theoretical explanation for the existence of backwardation on the futures markets, based on Routhakker's work dealing with asymmetry of arbitrage on such markets. The central assumption of the paper is that cash and futures prices tend to be more highly correlated at low than at high cash prices. This assumption reflects the asymmetry in arbitrage opportunities in futures markets; in particular, at the maturity date of a futures contract, the futures price cannot exceed the cash price of any grade-location combination deliverable under the futures contract. The main result of the paper is a proposition that asserts that with identical long and short hedgers, with the same wheat commitments on both sides of the market, and with utility functions exhibiting constant or decreasing absolute risk aversion, if the probability density function over cash and futures prices is sufficiently concentrated at low cash prices, then the resulting market equilibrium will exhibit backwardation, that is, the current future price is a downward biased estimator of the future futures price as well as being a downward biased estimator of the future cash price

Pay and Performance in Baseball: Modeling Regulars, Reserves and Expansion

Although the relationship between pay and performance in baseball has been convincingly demonstrated by Scully, a number of unresolved questions remain. Using a large sample of player salaries from contracts on file at the American League office, new estimates of this relationship are reported. The primary findings are as follows. First, while Scully's basic results are qualitatively robust, the salary elasticities for various performance and experience variables are substantially lower for our sample and specification. Second, for most variables, recent performance, as well as career average, contributes to the explanation of salary differences. Third, expansion has a significant effect on salary structure, and, in our model, makes it statistically invalid to estimate a single salary equation from pooled time-series data that includes an expansion year

The institutional framework for doing sports business: principles of EU competition policy in sports markets

The competition rules and policy framework of the European Union represents an important institutional restriction for doing sports business. Driven by the courts, the 2007 overhaul of the approach and methodology has increased the scope of competition policy towards sports associations and clubs. Nowadays, virtually all activities of sports associations that govern and organize a sports discipline with business elements are subject to antitrust rules. This includes genuine sporting rules that are essential for a league, championship or tournament to come into existence. Of course, 'real' business or commercial activities like ticket selling, marketing of broadcasting rights, etc. also have to comply with competition rules. Regulatory activities of sports associations comply with European competition rules if they pursuit a legitimate objective, its restrictive effects are inherent to that objective and proportionate to it. This new approach offers important orientation for the strategy choice of sports associations, clubs and related enterprises. Since this assessment is done following a case-by-case approach, however, neither a blacklist of anticompetitive nor a whitelist of procompetitive sporting rules can be derived. Instead, conclusions can be drawn only from the existing case decisions - but, unfortunately, this leaves many aspects open. With respect to business activities, the focus of European competition policy is on centralized marketing arrangements bundling media rights. These constitute cartels and are viewed to be anticompetitive in nature. However, they may be exempted from the cartel prohibition on efficiency and consumer benefits considerations. Here, a detailed list of conditions exists that centralized marketing arrangements must comply with in order to be legal. Although this policy seems to be well-developed at first sight, a closer look at the decision practice reveals several open problems. Other areas of the buying and selling behavior of sports associations and related enterprises are considerably less well-developed and do not provide much orientation for business

Normal Backwardation and the Inventory Effect.

The existence of backwardation in futures markets remains an intriguing and controv ersial issue. The authors show that a backwardation equilibrium can o ccur in a true futures market when participants are identical (degree of risk aversion, level of commodity commitments for long and short hedgers, or probability beliefs) using Hendrik J. Houthakker's comple tely neglected notion of an inventory effect that results in a patter n in the nearness of cash and futures prices over the harvest cycle. Copyright 1988 by University of Chicago Press.