'Evil' Speculators? Evidence from Grain Futures Trading in Chicago During the Interwar Period

This paper retraces the origins of modern futures trading and provides new evidence to an open question in financial history, whether the assumed negative impact of speculation, which generated several regulatory and institutional changes, is reflected in interwar futures trading. We assemble a new dataset consisting of daily information on grain futures contracts traded at the Chicago Board of Trade. We first devote attention to the function and regulation of early futures markets since these continue to influence market activities today. We then analyse econometrically the drivers of interwar speculative behaviour and the impact of speculators’ position changes on the volatility of grain prices. Our findings reveal that speculators significantly adjust their trading positions according to past price movements but follow different trading strategies before and after the onset of Great Depression. Nevertheless, we do not find any evidence of “evil” speculators amplifying the volatility of interwar grain futures prices