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Competition and manipulation in derivative contract markets

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  • Zhang, Anthony Lee

Abstract

This paper studies manipulation in derivative contract markets. When traders hedge factor risk using derivative contracts, traders can manipulate settlement prices by trading the underlying spot goods. In equilibrium, manipulation can make all agents worse off. The model illustrates how contract market manipulation can be defined in a manner distinct from other forms of strategic trading behavior, and how the structure of contract and spot markets affect the size of manipulation-induced market distortions.

Suggested Citation

  • Zhang, Anthony Lee, 2022. "Competition and manipulation in derivative contract markets," Journal of Financial Economics, Elsevier, vol. 144(2), pages 396-413.
    • Handle: RePEc:eee:jfinec:v:144:y:2022:i:2:p:396-413
    DOI: 10.1016/j.jfineco.2022.02.001
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    References listed on IDEAS

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    More about this item

    Keywords

    Derivatives; Manipulation; Regulation;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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