Marketmaker Behavior in an Auction Market: An Analysis of Scalpers in Futures Markets



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    • The author is Professor of Economics and Finance, Graduate School of Business Administration, New York University. He wishes to thank Deborah Black and Julio Lopez-Brito for excellent research assistance. Additional helpful comments were received from Menachem Brenner, Yakov Amihud, Phillip Cagan, Ian Dempsey, and an anonymous referee. This paper was supported by the L. Glucksman Institute for Research in Securities Markets and National Science Foundation Grant No. SES-8103156.


This paper focuses on the role of scalpers as marketmakers in the competitive auction of futures exchanges. We use transactions data of a representative scalper to identify the source of scalper earnings. We find that scalpers provide liquidity services to incoming market orders, thereby facilitating commercial hedging. Scalper earnings are positively related to the bid-asked spread and negatively related to the length of time a position is held.