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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26465
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| Title: | On the Nature of Trading: Do Speculators Leave Footprints? |
| Authors: | Silber, William L. |
| Issue Date: | Aug-2002 |
| Series/Report no.: | FIN-02-021 |
| Abstract: | The paper describes how two types of traders, market makers and
speculators, establish their positions and manage their risk exposure.
We show that balance sheets are insufficient to determine whether a
trader is a market maker or a speculator. On the other hand, trading
records describing the evolution of a position over time can identify
what trading strategy was pursued. Knowing the trading strategy helps to
evaluate contract compliance, risk exposure, and capital requirements of
trading firms. Understanding and verifying trader behavior is especially
important because leveraged trading firms, and individual traders, have
traditional incentives to mask their risk-taking activities. Without
proper monitoring, traders can substitute risky speculation for less
risky market making to reap potential payoffs. |
| URI: | http://hdl.handle.net/2451/26465 |
| Appears in Collections: | Finance Working Papers
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