Strategic trading and manipulation with spot market power
- When a spot market monopolist has a position in a corresponding futures market, he has an incentive to deviate from the spot market optimum to make this position more profitable. Rational futures market makers take this into account when setting prices. We show that the monopolist, by randomizing his futures market position, can strategically exploit his market power at the expense of other futures market participants. Furthermore, traders without market power can manipulate futures prices by hiding their orders behind the monopolist's strategic trades. The moral hazard problem stemming from spot market power thus provides a venue for strategic trading and manipulation that parallels the adverse selection problem stemming from inside information. Klassifikation: D82, G13
| Author: | Alexander Muermann, Stephen H. Shore |
|---|---|
| URN: | urn:nbn:de:hebis:30-25980 |
| Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2006,07 |
| Series (Serial Number): | CFS working paper series (2006, 07) |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2006 |
| Year of first Publication: | 2006 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2006/05/04 |
| Tag: | manipulation; spot market power; strategic trading |
| GND Keyword: | Devisen; Kassamarkt; Anlagepolitik |
| HeBIS-PPN: | 195428838 |
| Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Licence (German): |  Deutsches Urheberrecht |
