Competition and manipulation in derivative contract markets

Anthony Lee Zhang

Journal of Financial Economics, 2022, vol. 144, issue 2, 396-413

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.

Keywords: Derivatives; Manipulation; Regulation (search for similar items in EconPapers)
JEL-codes: D43 D44 D47 G18 K22 L40 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:144:y:2022:i:2:p:396-413

DOI: 10.1016/j.jfineco.2022.02.001

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