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 language | English |
|---|---|
| Pages (from-to) | 331-374 |
| Number of pages | 44 |
| Journal | Review of Derivatives Research |
| Volume | 21 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 2018 Oct 1 |
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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 journal › Article
}
TY - JOUR
T1 - An empirical investigation of large trader market manipulation in derivatives markets
AU - Jarrow, Robert
AU - Fung, Scott
AU - Tsai, Shih Chuan
PY - 2018/10/1
Y1 - 2018/10/1
N2 - 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.
AB - 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.
KW - Futures
KW - Market manipulation
KW - Options
KW - Positive alphas
KW - Strategic trading
UR - http://www.scopus.com/inward/record.url?scp=85045651852&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85045651852&partnerID=8YFLogxK
U2 - 10.1007/s11147-018-9143-0
DO - 10.1007/s11147-018-9143-0
M3 - Article
AN - SCOPUS:85045651852
VL - 21
SP - 331
EP - 374
JO - Review of Derivatives Research
JF - Review of Derivatives Research
SN - 1380-6645
IS - 3
ER -