Anti-manipulation Effects of Average Futures: A Generalized Framework

This study investigates the anti-manipulation effects of average futures within a generalized framework. Our primary contributions include revising and extending the anti-manipulation features proposed by Yoo (2015) and providing an in-depth comparison of existing anti-manipulation settlement mechanisms and average futures in terms of their efficacy as manipulation deterrents. We find that the anti-manipulation effects are weaker than in Yoo (2015) if a manipulator engages in an average futures contract with a smaller contract multiplier or more reference dates, manipulates it not only on its expiration date but also on other reference dates, or if the price momentum of the underlying asset due to the manipulation is stronger. Additionally, average futures effectively deter manipulation and help preserve market stability, unlike traditional anti-manipulation mechanisms that often distort prices. This comprehensive comparison underscores the advantages of using average futures to maintain market equilibrium and mitigate manipulation.