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Manipulation of the Commodity Futures Market Delivery Process

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  • Pirrong, Stephen Craig

Abstract

An analysis of the futures market delivery 'end game' specifies necessary and sufficient conditions for long and short traders to manipulate futures prices at contract expiration. The empirical and welfare implications of manipulation are derived as well. Manipulation is most likely to occur in markets where economic frictions (such as transportation and transactions costs) make it inefficient to return excessive deliveries to their original owners. These consumption distortions induce price changes that favor manipulators. Manipulation may also occur in markets where such costs are unimportant but the necessary conditions for the manipulation of a frictionless market are very restrictive. Copyright 1993 by University of Chicago Press.

Suggested Citation

  • Pirrong, Stephen Craig, 1993. "Manipulation of the Commodity Futures Market Delivery Process," The Journal of Business, University of Chicago Press, vol. 66(3), pages 335-369, July.
    • Handle: RePEc:ucp:jnlbus:v:66:y:1993:i:3:p:335-69
    DOI: 10.1086/296608
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Spot Month Limits: Necessary, But Not Sufficient, to Prevent Market Power Manipulation
      by cpirrong in Streetwise Professor on 2019-07-08 00:50:41

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    Cited by:

    1. Stocking, Andrew, 2012. "Unintended consequences of price controls: An application to allowance markets," Journal of Environmental Economics and Management, Elsevier, vol. 63(1), pages 120-136.
    2. Esen Onur & David Reiffen, 2018. "The effect of settlement rules on the incentive to Bang the Close," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(8), pages 841-864, August.
    3. Hugues Dastarac, 2021. "Strategic Trading, Welfare and Prices with Futures Contracts," Working papers 841, Banque de France.
    4. Adam-Müller, Axel F. A. & Wong, Kit Pong, 2002. "The impact of delivery risk on optimal production and futures hedging," CoFE Discussion Papers 02/08, University of Konstanz, Center of Finance and Econometrics (CoFE).
    5. Allen, Franklin & Haas, Marlene D. & Nowak, Eric & Tengulov, Angel, 2021. "Market efficiency and limits to arbitrage: Evidence from the Volkswagen short squeeze," Journal of Financial Economics, Elsevier, vol. 142(1), pages 166-194.
    6. Lien, Donald & Tse, Yiu Kuen, 2006. "A survey on physical delivery versus cash settlement in futures contracts," International Review of Economics & Finance, Elsevier, vol. 15(1), pages 15-29.
    7. Sofia Johan, 2008. "Global Market Surveillance," American Law and Economics Review, American Law and Economics Association, vol. 10(2), pages 454-506.
    8. Owen Lamont, 2004. "Go Down Fighting: Short Sellers vs. Firms," NBER Working Papers 10659, National Bureau of Economic Research, Inc.
    9. Craig Pirrong, 2022. "Sheep in wolves' clothing: Using false signals of demand to execute a market power manipulation," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(5), pages 790-802, May.
    10. E. Mamatzakis, 2014. "Revealing asymmetries in the loss function of WTI oil futures market," Empirical Economics, Springer, vol. 47(2), pages 411-426, September.
    11. Cumming, Douglas & Dannhauser, Robert & Johan, Sofia, 2015. "Financial market misconduct and agency conflicts: A synthesis and future directions," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 150-168.
    12. Aïd, René & Callegaro, Giorgia & Campi, Luciano, 2020. "No-arbitrage commodity option pricing with market manipulation," LSE Research Online Documents on Economics 103815, London School of Economics and Political Science, LSE Library.
    13. Pirrong, Craig, 2017. "The economics of commodity market manipulation: A survey," Journal of Commodity Markets, Elsevier, vol. 5(C), pages 1-17.
    14. Aitken, Michael & Cumming, Douglas & Zhan, Feng, 2015. "Exchange trading rules, surveillance and suspected insider trading," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 311-330.
    15. Merrick, John Jr & Naik, Narayan Y. & Yadav, Pradeep K., 2005. "Strategic trading behavior and price distortion in a manipulated market: anatomy of a squeeze," Journal of Financial Economics, Elsevier, vol. 77(1), pages 171-218, July.
    16. Cumming, Douglas & Johan, Sofia & Li, Dan, 2011. "Exchange trading rules and stock market liquidity," Journal of Financial Economics, Elsevier, vol. 99(3), pages 651-671, March.
    17. Tālis J. Putniņš, 2012. "Market Manipulation: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 26(5), pages 952-967, December.
    18. Kadıoğlu, Eyüp & Frömmel, Michael, 2022. "Manipulation in the bond market and the role of investment funds: Evidence from an emerging market," International Review of Financial Analysis, Elsevier, vol. 79(C).
    19. Jonathan A. Batten & Igor LonČarski & Peter G. Szilagyi, 2022. "Financial Market Manipulation, Whistleblowing, and the Common Good: Evidence from the LIBOR Scandal," Abacus, Accounting Foundation, University of Sydney, vol. 58(1), pages 1-23, March.
    20. Ren'e Aid & Giorgia Callegaro & Luciano Campi, 2019. "No-Arbitrage Commodity Option Pricing with Market Manipulation," Papers 1909.07896, arXiv.org, revised Mar 2020.
    21. Jian Yang & Zheng Li & Tao Wang, 2021. "Price discovery in chinese agricultural futures markets: A comprehensive look," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(4), pages 536-555, April.
    22. Owen Lamont, 2004. "Go Down Fighting: Short Sellers vs. Firms," NBER Working Papers 10659, National Bureau of Economic Research, Inc.
    23. Aitken, Michael & Cumming, Douglas & Zhan, Feng, 2013. "Exchange trading rules, surveillance and insider trading," CFS Working Paper Series 2013/15, Center for Financial Studies (CFS).
    24. Bungo Miyazaki & Kiyoshi Izumi & Fujio Toriumi & Ryo Takahashi, 2014. "Change Detection Of Orders In Stock Markets Using A Gaussian Mixture Model," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 21(3), pages 169-191, July.

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