Resource title

Strategic trading and manipulation with spot market power

Resource image

image for OpenScout resource :: Strategic trading and manipulation with spot market power

Resource description

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.

Resource author

Alexander Muermann, Stephen H. Shore

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25473

Resource license

Adapt according to the presented license agreement and reference the original author.