Pre-trade hedging: Evidence from the issuance of retail structured products

• 成果类型: Article
• 署名作者: Henderson, Brian J.; Pearson, Neil D.; Wang, Li
• 署名单位: George Washington University; University of Illinois System; University of Illinois Urbana-Champaign; University System of Ohio; Case Western Reserve University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2020.02.004
• 发表日期: 2020
• 页码: 108-128
• 关键词: MARKET MANIPULATION; Structured equity products; Equity-linked securities; Delta hedging; Pre-trade hedging; Price impact

摘要

We find evidence consistent with previously unrecognized market manipulation by broker-dealers. Specifically, we show that pre-trade hedging, which is distinct from front-running, alters prices at which derivative trades occur. We show this behavior is intentional by exploiting variation in the design of structured equity products (SEPs). We find positive abnormal returns on SEP pricing dates for which issuers benefit from altering closing stock prices but no such returns on pricing dates of otherwise similar SEPs. We also show that large buy trades near the close of trading are more frequent when SEP issuers have incentives to alter closing stock prices. (C) 2020 Elsevier B.V. All rights reserved.