The Impact of Derivative Markets on Asset Management and the Economy

During the last decade, derivatives markets became an asset class of their own and influenced the financial landscape strongly. While the financial sector contributes positively to overall economic growth in many studies up to the mid nineties, a positive contribution of the financial sector to economic growth in mature market economies is less evident with more recent data. What has happened? Is the rapid growth of derivative markets a catalyst for changes in the financial sector? Did the impact of asset management on the economy change? Drawing on the Merton and Bodie (1995) functional perspective, this paper tries to explain this change by discussing the spheres of derivative impact. We find that derivatives appear to fill part of the gap that traditional products and participants recently face in explaining the fostering of economic development