macrocephalopod

Yes and no. And asset pricing theorists are not wrong. But there is a difference between expected return at one point in time (given a state of the word) vs expected return over time (with an evolving state of the world). Liquid fwds or not, doesn’t make a difference

It think you're trying to resolve a paradox with this "expected return over time" vs. "expected return at one point in time" logic, but you're focusing on the wrong thing. Here's the key: expected future price of a financial forward contract is *not* its current market price.

The price of a financial futures contract has no predictive value - it's simply the spot price + a risk-free premium. For risky assets, both the spot and futures contract price contain the same embedded risk premium, whose size depends on how risky the asset is.

It is correct that it’s not predictive. But it’s what the market expects in the aggregate.

That is an incorrect statement. Here is what 70 years of asset pricing theory says: risky assets are priced such that expected return = risk-free rate + risk premium. Cash+carry arbitrage theory says futures contract is priced at spot + risk-free rate - cost of carry. Therefore,

futures price has same embedded risk premium as spot price for financial futures. My statements are all backed by 70 years of asset pricing theory. If you want to dispute them, you need to provide evidence, you can't just make statements about how you think markets work.

I suspect that I know how markets work better than you think. And I’m trying to get people to understand them better by giving them some food for thought.

Here’s an easy way to see where you’re wrong. If a dividend paying stock is priced so that it’s expected return was the rfr, then only thing that affects the price is changes in the rfr or changes in the expected future divs. But stocks are *way* more volatile than that.