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transcript22 - Financial Markets: Lecture 22 Transcript...

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Financial Markets: Lecture 22 Transcript April 16, 2008 << back Professor Robert Shiller: First thing, I wanted just to--I forgot to show--I don't know how exciting this is, but this is a ticker tape. They weren't brown. This tape is about a half-century old. It came from the attic of the New York Stock Exchange. When I was at a conference there a year ago, I mentioned to the vice president there that I had told my class about ticker tape machines and they had never heard of them--didn't know what they were; well, at least some of them hadn't. So, he sent me this. This was never used, but normally it would go into a machine and it would print out stock prices at trades. I was giving a talk yesterday at the New York Stock Exchange and I met him again and I said, thank you for this; my class was happy to see it. He said, well I could have given you a whole ticker tape machine. He said, well the attic at the New York Stock Exchange was filled with them, but they finally threw them out, so it's too late. I think it is--this is evidence that information technology really has dominated stock prices. We didn't really have active stock markets before the electronic age, which is an interesting thing to think about because the ticker tape machine was invented by Edison in 1867. In 1867, there were hardly any--there were stock markets, but they were very small. It was really the electronic communications that made it what it is. It's exciting to think about the future and where electronic communication is going to take markets going forward. I wanted to continue today about our futures markets. Let me just step back and think, what is a futures market? Today, I'm going to talk about how it has expanded to cover lots of other things, notably financial instruments. Let's just think, what is a futures market? If you read Holbrook Working, who's on your reading list, and his half-century old paper, back in those days that he was writing, he says that the name "futures" is a bit misleading because that suggests that it's talking about the future rather than today. If you listen to the news about any commodity price, it's always talking about futures price. They don't talk about the price today. The futures price is the interesting--the point that Working made is not so much that it's in the future is that it's well-defined and standardized. For agricultural futures, it's true that the contract doesn't mature for a month or so, but as Working points out, any contract for delivery of something has some term. They don't just deliver it instantly and Working says, there are times when the so-called spot price is actually further in the future than the futures price. If you look at the way things are traded--I'm going to be talking a lot about oil, but let me just talk generally about oil. What is the price of oil and how does anybody know what it is? If you go to people who buy and sell oil, they will tell you, well we don't just sell oil; we don't just have it ready to go. Almost all of the oil is
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transcript22 - Financial Markets: Lecture 22 Transcript...

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