Work

Winners, Losers, and Regulators in a Derivatives Market Bubble

Year: 2020

Type: article

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.

Source: Review of Financial Studies

DOI: 10.1093/rfs/hhaa058

Authors: Xindan Li, Avanidhar Subrahmanyam, Xuewei Yang

Institutions: Nanjing University, University of California, Los Angeles, UNSW Sydney

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2793872569

FWCI: 3.9

Cites: 72

Cited by: 26

Related to: 10