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Can position limits restrain ‘rogue’ trading?

ap Gwilym, R. and Ebrahim, M.S. (2013) Can position limits restrain ‘rogue’ trading? Journal of Banking and Finance, 37 ((3)). pp. 824-836. DOI: 10.1016/j.jbankfin.2012.10.025

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Abstract

This paper studies the imposition of position limits on commodity futures from the perspective of curbing excessive speculation and thus manipulation. We present a simple general equilibrium model in a static rational expectations framework and agent heterogeneity to illustrate that excessive speculation serves to enrich other agents at the expense of the speculator. Position limits, on the contrary, are not only superfluous, but also counter-productive, as they exacerbate market power and lead to a deterioration in efficiency. Position limits not only reduce social welfare but also cannot restrain market manipulation.

Item Type: Article
Subjects: Research Publications
Departments: College of Business, Law, Education and Social Sciences > Bangor Business School
Date Deposited: 09 Dec 2014 16:45
Last Modified: 23 Sep 2015 03:08
ISSN: 0378-4266
URI: http://e.bangor.ac.uk/id/eprint/950
Identification Number: DOI: 10.1016/j.jbankfin.2012.10.025
Publisher: Elsevier
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