{"title":"Liquidation Cascade and Anticipatory Trading: Evidence from the Structured Equity Product Market","authors":"J. Auh, Wonho Cho","doi":"10.1093/rapstu/raac010","DOIUrl":null,"url":null,"abstract":"\n We show that structured equity derivatives can cause significant price pressure of the underlying stock upon an event of dramatic payoff change. Moreover, one event causes another: the event cascade amplifies the magnitude of the impact. We find that a single event accounts for a -6.4% return on the event day, and it increases the probability of a subsequent event by 21.3%. Given the negative price impact, traders try to liquidate ahead of each other, exacerbating the degree of price pressure. Our results uncover the chain-reaction and (mis)coordination mechanism in complex derivatives markets that can provoke substantial price shocks.","PeriodicalId":21144,"journal":{"name":"Review of Asset Pricing Studies","volume":"24 1","pages":""},"PeriodicalIF":2.2000,"publicationDate":"2022-04-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"1","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Review of Asset Pricing Studies","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1093/rapstu/raac010","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 1
Abstract
We show that structured equity derivatives can cause significant price pressure of the underlying stock upon an event of dramatic payoff change. Moreover, one event causes another: the event cascade amplifies the magnitude of the impact. We find that a single event accounts for a -6.4% return on the event day, and it increases the probability of a subsequent event by 21.3%. Given the negative price impact, traders try to liquidate ahead of each other, exacerbating the degree of price pressure. Our results uncover the chain-reaction and (mis)coordination mechanism in complex derivatives markets that can provoke substantial price shocks.
期刊介绍：
The Review of Asset Pricing Studies (RAPS) is a journal that aims to publish high-quality research in asset pricing. It evaluates papers based on their original contribution to the understanding of asset pricing. The topics covered in RAPS include theoretical and empirical models of asset prices and returns, empirical methodology, macro-finance, financial institutions and asset prices, information and liquidity in asset markets, behavioral investment studies, asset market structure and microstructure, risk analysis, hedge funds, mutual funds, alternative investments, and other related topics.
Manuscripts submitted to RAPS must be exclusive to the journal and should not have been previously published. Starting in 2020, RAPS will publish three issues per year, owing to an increasing number of high-quality submissions. The journal is indexed in EconLit, Emerging Sources Citation IndexTM, RePEc (Research Papers in Economics), and Scopus.
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