Trading in derivatives when the underlying is scarce

• 成果类型: Article
• 署名作者: Banerjee, Snehal; Graveline, Jeremy J.
• 署名单位: Northwestern University; University of Minnesota System; University of Minnesota Twin Cities
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2013.11.008
• 发表日期: 2014
• 页码: 589-608
• 关键词: Scarcity; Short-selling; Price distortions; derivatives; regulation

摘要

Regulatory restrictions and market frictions can constrain the aggregate quantity of long and short positions in a security. When these constraints bind, we refer to the security as scarce, and its price becomes distorted relative to its value in a frictionless market. We show that an otherwise redundant derivative can reduce the price distortion of the underlying security by relaxing its scarcity. We also show that it is especially important to analyze the underlying and derivative markets jointly when evaluating the impact of regulation, such as short-sales bans and position limits in derivatives, that restricts trade. (C) 2013 Elsevier B.V. All rights reserved.