Manipulation, Informed Trading, and Regulation in Leveraged Event-Linked Markets

Maksym Nechepurenko

Papers from arXiv.org

Abstract: Leverage does not create manipulation or informed trading in event markets, but it changes their economics. We separate four conduct channels: market-price manipulation, real-world outcome manipulation, resolution-process manipulation, and informed trading that exploits non-public information without changing the event or resolution rule. A capital-constrained amplification model shows that gross directional gains scale with financed exposure while information, influence, concealment, execution, and enforcement costs need not scale proportionally. Leverage therefore weakly enlarges profitable influence opportunities under fixed-cost conditions, but endogenous price impact, convex detection costs, or enforceable position limits can reverse the result. We connect this model to the revised non-portability, taxonomy, and fill-side evidence of the companion papers. Historical-path replay identifies mechanical rule channels, not equilibrium conduct; fill-side address data support concentration analysis but not address-level spoofing or quote-withdrawal claims. The regulatory contribution is a functions-first framework covering product authorization, market-integrity surveillance, event-influence controls, resolution governance, and loss-bearing capital. A July 2026 source snapshot indicates an evolving United States framework and no harmonized cross-jurisdictional category for leveraged event contracts. Legal status remains product- and jurisdiction-specific.

Date: 2026-05, Revised 2026-07
New Economics Papers: this item is included in nep-reg
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