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Leverage as an implicit tournament: Capital constraints and return decoupling in futures markets

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  • Tan, Weihong

Abstract

Why do retail investors persist in high-leverage markets despite enduring losses? I propose a "Generator-Amplifier" mechanism where leverage constructs an "Implicit Tournament" that locks state-independent trading intensity (the Generator), while friction acts as a regressive metric of this intensity (the Amplifier). Using a rare account-level dataset from China (N = 167,928) containing micro-capital flows, I document a "Double Decoupling" signature: cumulative costs rise linearly while P&L declines linearly, both decoupled from market states. "Heavyweight" and "High-Net-Worth" control groups confirm a strict monotonic gradient of dissipation, ruling out skill differences. As a high-leverage "transparent lens," this framework unifies retail losses across zero-commission models, gamified interfaces, and high-friction venues, motivating a policy shift from investor education to "cognitive nudges" and structural leverage constraints.

Suggested Citation

  • Tan, Weihong, 2026. "Leverage as an implicit tournament: Capital constraints and return decoupling in futures markets," Finance Research Letters, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:finlet:v:98:y:2026:i:c:s1544612326003971
    DOI: 10.1016/j.frl.2026.109867
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