An empirical investigation of large trader market manipulation in derivatives markets

Robert Jarrow, Scott Fung, Shih Chuan Tsai

Research output: Contribution to journalArticle

Abstract

Using account-level transaction data in options and futures markets, we investigate the existence of market manipulation, which is the ability of large traders to trade strategically, impacting prices and making abnormal profits. First, large trader’s option positions have a quantity impact on the underlying asset’s price. Second, large traders generate significantly positive alphas from trading options and futures. Among the different investor types, proprietary dealers generate the largest positive alphas. Third, these abnormal returns are consistent with strategic trading and cross-market manipulation. The evidence supports market manipulation across the options and futures markets, but not within the futures market itself.

Original languageEnglish
Pages (from-to)331-374
Number of pages44
JournalReview of Derivatives Research
Volume21
Issue number3
DOIs
Publication statusPublished - 2018 Oct 1

Fingerprint

Futures markets
Empirical investigation
Market manipulation
Traders
Derivative markets
Futures trading
Abnormal returns
Transaction data
Option trading
Strategic trading
Investors
Profit
Dealers
Asset prices

Keywords

  • Futures
  • Market manipulation
  • Options
  • Positive alphas
  • Strategic trading

ASJC Scopus subject areas

  • Finance
  • Economics, Econometrics and Finance (miscellaneous)

Cite this

An empirical investigation of large trader market manipulation in derivatives markets. / Jarrow, Robert; Fung, Scott; Tsai, Shih Chuan.

In: Review of Derivatives Research, Vol. 21, No. 3, 01.10.2018, p. 331-374.

Research output: Contribution to journalArticle

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