Winners, losers, and regulators in a derivatives market bubble

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

12 Scopus Citations
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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)313-350
Journal / PublicationReview of Financial Studies
Volume34
Issue number1
Online published20 May 2020
Publication statusPublished - Jan 2021
Externally publishedYes

Abstract

We use proprietary brokerage data to study trading patterns within a well-known financial market bubble: the Chinese warrants bubble. Persistently successful investors trade very actively and exhibit characteristics of de facto market makers. Unskilled investors unprofitably trend-chase and increase holdings in out-of-the-money warrants near expiration, whereas sophisticated investors do the reverse. We find that regulators did not properly forecast trading frenzies, as the prespecified price limits often exclude the fundamental values of warrants.

Citation Format(s)

Winners, losers, and regulators in a derivatives market bubble. / LI, Xindan; Subrahmanyam, Avanidhar ; Yang, Xuewei.
In: Review of Financial Studies, Vol. 34, No. 1, 01.2021, p. 313-350.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review