Winners, Losers, and Regulators in a Derivatives Market Bubble

We use proprietary brokerage data to study trading patterns within a well-known financial market bubble: that in the Chinese warrants market. Persistently successful investors traded very actively and exhibited characteristics of de facto market makers. Unskilled investors unprofitably trend-chased and increased holdings in out-of-the-money warrants near expiration, whereas sophisticated investors did the reverse. Regulators did not properly forecast trading frenzies, as the pre-specified price limits often excluded warrants' fundamental values