The Role of Speculators During Times of Financial Distress

Posted: 22 May 2019

See all articles by Naomi E. Boyd

Naomi E. Boyd

West Virginia University

Jeffrey H. Harris

American University - Department of Finance and Real Estate

Arkadiusz Nowak

Cornerstone Research

Date Written: August 27, 2011

Abstract

We utilize detailed, trader level data to examine the role of speculators during the failure of Amaranth Advisors, Inc. We find that speculators serve as a stabilizing force during this period, maintaining or increasing long positions even while prices are falling. We develop two testable propositions regarding liquidation versus transfer of positions and conclude that the probability of transfer is more likely for distant contract expirations and for contracts more dominantly held by the distressed trader. We also examine the role of speculators in providing liquidity and mitigating the effects of liquidity risk by evaluating the change in the number of traders, the size and time between trades, and a Herfindahl measure of speculative trader concentration during the crisis period.

Keywords: Hedge Funds, Speculators, Futures Markets

JEL Classification: G13, G14, G28

Suggested Citation

Boyd, Naomi E. and Harris, Jeffrey H. and Nowak, Arkadiusz, The Role of Speculators During Times of Financial Distress (August 27, 2011). Journal of Alternative Investments, Vol. 14, No. 1, 2011, Available at SSRN: https://ssrn.com/abstract=2652251

Naomi E. Boyd (Contact Author)

West Virginia University ( email )

PO Box 6025
Morgantown, WV 26506
United States

Jeffrey H. Harris

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-6669 (Phone)

Arkadiusz Nowak

Cornerstone Research ( email )

1000 El Camino Real
Menlo Park, CA 94025-4327
United States

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