Normal backwardation theory

Normal backwardation theory

Holds that the futures price will be bid down to a level below the expected spot price.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Normal Backwardation Theory

In Keynesian economics, a theory stating that the future spot price for a commodity will be higher than the forward price. This is because the producers of commodities expect to sell no matter what, and are willing to sell at a loss, if necessary. In normal backwardation, no rational investor will buy on the future spot market if he/she can buy more cheaply on the forward market. The extent to which normal backwardation occurs in the market is debated.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved