Series: Occasional Papers. 2123.
Author: Carlos González Pedraz and Adrian van Rixtel.
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Abstract
Since the onset of the pandemic, the equity market has experienced bouts of high volatility, with private investors’ use of derivatives for speculative purposes being cited as a relevant factor in some cases. This paper analyses two specific episodes: the revaluation of GameStop stock, and the swift rise and subsequent collapse of Archegos Capital. In both instances, the leverage provided by derivatives generated strains in the functioning of illiquid market segments in the form of trading feedback loops.