Speculation

Speculation is one -for-profit from price changes in business activity in the economy.

Business Overview

The goal of any economic speculation is to make a financial gain by the future realization of an expected market assessment. The financial result of any speculation is always in the difference between purchase price and selling price of a market item, adjusted for costs of trade ( transaction costs) and the cost of holding the object as storage, financing and insurance cost (so-called cost of carry).

Successful speculation is mainly due to the early recognition and detection of suspected misjudgment of the market by market participants about future price developments, which in turn can be explained by unequal distributed knowledge and skills between buyers and sellers (so-called " Asymmetric Information"). Corrects the market then these misperceptions are a result of speculative profits. Should the speculation fails, caused speculation losses.

Economic Importance

An important economic function of speculation is that given the capital market business risks for a reasonable return expectation to the group of speculators can be transferred ( hedging).

Example: Due to poor macroeconomic fundamentals, a devaluation of the currency A is expected, that is, the exchange rate against other stable currency B will change. The speculator buys now in his opinion, more stable currency B in order to swap back after the devaluation of A. But precisely this transaction initiates the devaluation. In this respect, one can say that the capital or foreign exchange market has re-evaluated in light of the macroeconomic data, currencies. Speculation here is thus a mechanism for adjustment of the price system to new information so that resource allocation is improved.

Trend gain

In the opinion of critics speculation can contribute to increase market trends and speculative bubbles. Speculators are blamed for currency crises and economic crises such as the Argentine crisis and the Asian crisis. Therefore, some economists (eg globalization critics, see also free economy ) argue, speculation should be banned or restricted. The introduction of financial transaction taxes, especially a Tobin tax is justified by the proponents with the expected curb speculation. However, according to the prevailing opinion in the economics associated higher transaction costs reduce the arbitrage and thus the efficiency of markets, allowing speculation would be even easier. The empirical research results show a clear positive relationship between transaction costs and volatility ( instability) of the market price.

Speculative wage policy

In another meaning a wage policy is considered with the aim of the representatives of the Catholic worker movement Theodor Brauer to increase with " speculative wage policy ", the wage rate.

Designations

As "hot money" ( " hot money " ), funds are designated to be relocated at short notice for speculative reasons from one country to another. Economic Importance achieve these funds especially if they are also withdrawn at short notice and exacerbate the crisis.