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King Cotton’s Future: Speculation and innovation in the 19th century Anglo-American Cotton trade

PhD project title and outline, including interdisciplinary dimension:
King Cotton’s Future: Speculation and innovation in the 19th century Anglo-American Cotton trade

Speculative behaviour in commodity markets is a contentious practice; it is condemned for perverting market outcomes, whilst its proponents argue that speculation constitutes a valuable tool to hedge risks and encourage production, by smoothing price volatility. The extent to which speculative behaviour affects commodity prices and price volatility is widely debated in economics and finance. This research project addresses these concerns by developing a unique dataset of prices and speculation in a historical setting; we investigate speculative behaviour on the Liverpool cotton market during the 19th century, where the volume of speculative trade can be identified. This innovative, interdisciplinary project will combine the theoretical framework of economics with the archival approach of history in order to address the alleged indispensability of commodity futures trading. Historically, speculation has been associated with financial manias and bubbles, and much has been written on the role of destabilizing speculation in this context. However, it is also probable that the presence of speculators can improve market functions, bringing economic benefits. In particular, through their efforts to gather information on underlying assets, speculators in commodities markets who take long term positions based on price expectations are known to improve price discovery through information aggregation. These speculators also supply liquidity to market participants who wish to hedge risk.

The project draws on archival resources of the Liverpool Cotton Brokers Association. The research fellow will construct and analyse a unique dataset covering the Liverpool cotton trade from 1841, the formation of the Association, to 1880, when trading of organised futures contracts in Liverpool is said to have developed. The output of this project will fuel discussions in various academic fields, addressing the debates around speculative behaviour in a novel way.

Primary Supervisor: Dr Matthias Blum (Queen's Management School)
Secondary Supervisor:
Dr James Davis (HAPP)
External Partner/Organisation: The International Cotton Association (ICA)