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Marketmaker Behavior in an Auction Market: An Analysis of Scalpers in Futures Markets

115 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Stochastic processes and financial applications Market Dynamics and Volatility

Abstract

ABSTRACT This paper focuses on the role of scalpers as marketmakers in the competitive auction of futures exchanges. We use transactions data of a representative scalper to identify the source of scalper earnings. We find that scalpers provide liquidity services to incoming market orders, thereby facilitating commercial hedging. Scalper earnings are positively related to the bid‐asked spread and negatively related to the length of time a position is held.

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1961The Economics of Information 1976The Economics of Information 1972The Economics of Liquidity Services 1979Structural Organization of Secondary Markets: Clearing Frequency, Dealer Activity and Liquidity Risk 1981Innovation, competition, and new contract design in futures markets 1957Can Speculators Forecast Prices?2012The Securities Markets

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2001Do Professional Traders Exhibit Loss Realization Aversion 2012Determinants of Trader Profits in Commodity Futures Markets 1993Scalper behavior in futures markets: An empirical examination 1991Futures trading, transaction costs, and stock market volatility 1987Futures Markets: A Consequence of Risk Aversion or Transactions Costs?1995Seasonalities and intraday return patterns in the foreign currency futures market 2001Transaction Costs and Market Quality: Open Outcry Versus Electronic Trading

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