Real effects of centralized markets: evidence from steel futures

I study the real effects of centralized derivative markets using the staggered introduction of futures contracts for different steel products in the U.S. Employing a difference-in-differences strategy, I find that the arrival of centralized futures markets improves price transparency and risk management in the underlying product market: price dispersion decreases and steel pro- ducers increase their hedging activity. Moreover, market share is reallocated toward low-cost producers, while product prices, producers’ profits, and valuations decrease. Overall, the results indicate that centralized futures markets foster competition in the product market.