An Analysis of Own Account Trading by Dual Traders in Futures Markets: A Bayesian Approach

University of British Columbia, Finance Working Paper No. 99-9

Sauder School of Business Working Paper

48 Pages Posted: 6 Mar 2000

See all articles by Kai Li

Kai Li

University of British Columbia (UBC) - Sauder School of Business; China Academy of Financial Research (CAFR)

Sugato Chakravarty

Purdue University

Date Written: November 1999

Abstract

Using audit trail transaction data compiled by the Commodity Futures Trading Commission (CFTC), we seek to ascertain directly the motives behind dual traders' own account trading and whether or not they are informed traders. We estimate our system of equations on each of the 101 most active dual traders in the data, using the Markov chain Monte Carlo (MCMC) method. We find that dual traders are informed traders who do not appear to piggyback on their customers' trades; whose own account trading reflects inventory control; and who appear to be liquidity suppliers. We also show that dual traders are heterogeneous in terms of their trading skills and other trade-related characteristics.

JEL Classification: G20, G28, C11, C15, C35

Suggested Citation

Li, Kai and Chakravarty, Sugato, An Analysis of Own Account Trading by Dual Traders in Futures Markets: A Bayesian Approach (November 1999). University of British Columbia, Finance Working Paper No. 99-9; Sauder School of Business Working Paper. Available at SSRN: https://ssrn.com/abstract=193828 or http://dx.doi.org/10.2139/ssrn.193828

Kai Li

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8353 (Phone)
604-822-4695 (Fax)

HOME PAGE: http://finance.sauder.ubc.ca/~kaili

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Sugato Chakravarty (Contact Author)

Purdue University ( email )

Consumer Sciences
1262 Matthews Hall Rm 214F
West Lafayette, IN 47906
United States
765-494-6427 (Phone)
765-494-0869 (Fax)

HOME PAGE: http://web.ics.purdue.edu/~sugato

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