The Relation Between Forward Prices and Futures Prices

This paper consolidates the results of some recent work on the relation between forward prices and futures prices. It develops a number of propositions characterizing the two prices. These propositions contain several testable implications about the difference between forward and futures prices. Many of the propositions show that equilibrium forward and futures prices are equal to the values of particular assets, even though they are not in themselves asset prices. The paper then illustrates these results in the context of two valuation models and discusses the effects of taxes and other institutional factors.