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Title:Strategic trading and manipulation with spot market power PDF Logo
Authors:Muermann, Alexander
Shore, Stephen H.
Issue Date:2006
Series/Report no.:CFS Working Paper 2006/07
Abstract: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.
Subjects:Strategic Trading
Manipulation
Spot Market Power
JEL:D82
G13
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-25980
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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