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Strategic trading behavior and price distortion in a manipulated market: anatomy of a squeeze

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  • Merrick, John Jr
  • Naik, Narayan Y.
  • Yadav, Pradeep K.
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    File URL: http://www.sciencedirect.com/science/article/B6VBX-4FJGWCX-1/2/80b413bc91cb04cb4be714dcae386ef0
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 77 (2005)
    Issue (Month): 1 (July)
    Pages: 171-218

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    Handle: RePEc:eee:jfinec:v:77:y:2005:i:1:p:171-218

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    Web page: http://www.elsevier.com/locate/inca/505576

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    References

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    1. Gay, Gerald D. & Manaster, Steven, 1986. "Implicit delivery options and optimal delivery strategies for financial futures contracts," Journal of Financial Economics, Elsevier, vol. 16(1), pages 41-72, May.
    2. Hemler, Michael L, 1990. " The Quality Delivery Option in Treasury Bond Futures Contracts," Journal of Finance, American Finance Association, vol. 45(5), pages 1565-86, December.
    3. Dunn, Kenneth B. & Spatt, Chester S., 1984. "A strategic analysis of sinking fund bonds," Journal of Financial Economics, Elsevier, vol. 13(3), pages 399-423, September.
    4. Paul Milgrom & Nancy L.Stokey, 1979. "Information, Trade, and Common Knowledge," Discussion Papers 377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Duffie, Darrell, 1996. " Special Repo Rates," Journal of Finance, American Finance Association, vol. 51(2), pages 493-526, June.
    6. Narayan Y. Naik & Pradeep K. Yadav, 2003. "Risk Management with Derivatives by Dealers and Market Quality in Government Bond Markets," Journal of Finance, American Finance Association, vol. 58(5), pages 1873-1904, October.
    7. Jegadeesh, Narasimhan, 1993. " Treasury Auction Bids and the Salomon Squeeze," Journal of Finance, American Finance Association, vol. 48(4), pages 1403-19, September.
    8. Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-86, March.
    9. Gay, Gerald D. & Manaster, Steven, 1984. "The quality option implicit in futures contracts," Journal of Financial Economics, Elsevier, vol. 13(3), pages 353-370, September.
    10. Figlewski, Stephen, 1981. "Futures Trading and Volatility in the GNMA Market," Journal of Finance, American Finance Association, vol. 36(2), pages 445-56, May.
    11. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June.
    12. Boyle, Phelim P, 1989. " The Quality Option and Timing Option in Futures Contracts," Journal of Finance, American Finance Association, vol. 44(1), pages 101-13, March.
    13. Epps, Thomas W, 1975. "Security Price Changes and Transaction Volumes: Theory and Evidence," American Economic Review, American Economic Association, vol. 65(4), pages 586-97, September.
    14. Hua He & Jiang Wang, 1995. "Differential Information and Dynamic Behavior of Stock Trading Volume," NBER Working Papers 5010, National Bureau of Economic Research, Inc.
    15. Pirrong, Stephen Craig, 1993. "Manipulation of the Commodity Futures Market Delivery Process," The Journal of Business, University of Chicago Press, vol. 66(3), pages 335-69, July.
    16. Alex Kane & Alan J. Marcus, 1986. "Valuation and Optimal Exercise of the Wild Card Option in the Treasury Bond Futures Market," NBER Working Papers 1614, National Bureau of Economic Research, Inc.
    17. Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 109-126, March.
    18. Cooper, David J. & Donaldson, R. Glen, 1998. "A Strategic Analysis of Corners and Squeezes," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(01), pages 117-137, March.
    19. Jennings, Robert H & Starks, Laura T & Fellingham, John C, 1981. "An Equilibrium Model of Asset Trading with Sequential Information Arrival," Journal of Finance, American Finance Association, vol. 36(1), pages 143-61, March.
    20. Merrick, John J., 1988. "Hedging with Mispriced Futures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(04), pages 451-464, December.
    21. Figlewski, Stephen, 1984. " Hedging Performance and Basis Risk in Stock Index Futures," Journal of Finance, American Finance Association, vol. 39(3), pages 657-69, July.
    22. Shalen, Catherine T, 1993. "Volume, Volatility, and the Dispersion of Beliefs," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 405-34.
    23. Nyborg, Kjell G. & Strebulaev, Ilya A., 2001. "Collateral and short squeezing of liquidity in fixed rate tenders," Journal of International Money and Finance, Elsevier, vol. 20(6), pages 769-792, November.
    24. Vikas Agarwal, 2004. "Risks and Portfolio Decisions Involving Hedge Funds," Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 63-98.
    25. Fung, William & Hsieh, David A., 2000. "Measuring the market impact of hedge funds," Journal of Empirical Finance, Elsevier, vol. 7(1), pages 1-36, May.
    26. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
    27. Joshua D. Coval, 2001. "Is Sound Just Noise?," Journal of Finance, American Finance Association, vol. 56(5), pages 1887-1910, October.
    28. Karpoff, Jonathan M, 1986. " A Theory of Trading Volume," Journal of Finance, American Finance Association, vol. 41(5), pages 1069-87, December.
    29. Chatterjea, Arkadev & Jarrow, Robert A., 1998. "Market Manipulation, Price Bubbles, and a Model of the U.S. Treasury Securities Auction Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(02), pages 255-289, June.
    30. Copeland, Thomas E, 1976. "A Model of Asset Trading under the Assumption of Sequential Information Arrival," Journal of Finance, American Finance Association, vol. 31(4), pages 1149-68, September.
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    Citations

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    Cited by:
    1. Aitken, Michael & Cumming, Douglas & Zhan, Feng, 2013. "High frequency trading and end-of-day price dislocation," CFS Working Paper Series 2013/16, Center for Financial Studies (CFS).
    2. Comerton-Forde, Carole & Putnins, Talis J., 2011. "Measuring closing price manipulation," Journal of Financial Intermediation, Elsevier, vol. 20(2), pages 135-158, April.
    3. Cumming, D. & Johan, S.A., 2008. "Global market surveillance," Discussion Paper 2008-002, Tilburg University, Tilburg Law and Economic Center.
    4. Cumming, Douglas & Johan, Sofia & Li, Dan, 2011. "Exchange trading rules and stock market liquidity," Journal of Financial Economics, Elsevier, vol. 99(3), pages 651-671, March.
    5. Paul Rhode & Koleman Strumpf, 2006. "Manipulating political stock markets: A field experiment and a century of observational data," Natural Field Experiments 00325, The Field Experiments Website.
    6. Alan Mehlenbacher, 2007. "Multiagent System Simulations of Treasury Auctions," Department Discussion Papers 0709, Department of Economics, University of Victoria.
    7. Shino Takayama, 2013. "Price Manipulation, Dynamic Informed Trading and Tame Equilibria: Theory and Computation," Discussion Papers Series 492, School of Economics, University of Queensland, Australia.
    8. Tālis J. Putniņš, 2012. "Market Manipulation: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 26(5), pages 952-967, December.
    9. Giambona, Erasmo & Golec, Joseph, 2010. "Strategic trading in the wrong direction by a large institutional insider," Journal of Empirical Finance, Elsevier, vol. 17(1), pages 1-22, January.
    10. Lee, Eun Jung & Eom, Kyong Shik & Park, Kyung Suh, 2013. "Microstructure-based manipulation: Strategic behavior and performance of spoofing traders," Journal of Financial Markets, Elsevier, vol. 16(2), pages 227-252.
    11. Imisiker, Serkan & Tas, Bedri Kamil Onur, 2013. "Which firms are more prone to stock market manipulation?," Emerging Markets Review, Elsevier, vol. 16(C), pages 119-130.
    12. ap Gwilym, Rhys & Ebrahim, M. Shahid, 2013. "Can position limits restrain ‘rogue’ trading?," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 824-836.
    13. Guo, Ming & Li, Zhan & Tu, Zhiyong, 2012. "A unique “T+1 trading rule” in China: Theory and evidence," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 575-583.
    14. Alejandro balbas & Susana Reichardt, 2006. "On The Future Contract Quality Option: A New Look," Business Economics Working Papers wb063711, Universidad Carlos III, Departamento de Economía de la Empresa.
    15. Aitken, Michael & Cumming, Douglas & Zhan, Feng, 2013. "Exchange trading rules, surveillance and insider trading," CFS Working Paper Series 2013/15, Center for Financial Studies (CFS).
    16. Ben-Abdallah, Ramzi & Ben-Ameur, Hatem & Breton, Michèle, 2009. "An analysis of the true notional bond system applied to the CBOT T-bond futures," Journal of Banking & Finance, Elsevier, vol. 33(3), pages 534-545, March.

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