Cross-product Manipulation in Electricity Markets, Microstructure Models and Asymmetric Information

Electricity market manipulation enforcement actions have moved from conventional analysis of generator market power in real-time physical markets to material allegations of sustained cross-product price manipulation in forward financial markets. A major challenge is to develop and apply forward mark...

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Bibliographic Details
Published in:The Energy journal (Cambridge, Mass.) Mass.), 2019-09, Vol.40 (5), p.221-246
Main Authors: Prete, Chiara Lo, Hogan, William W., Liu, Bingyuan, Wang, Jia
Format: Article
Language:English
Subjects:
Asymmetry
Backup software
Commodity markets
Electric power transmission
Electric utilities
Electricity
Empirical analysis
Finance
Financial markets
Futures market
Power (Philosophy)
Real time
Time
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Summary:Electricity market manipulation enforcement actions have moved from conventional analysis of generator market power in real-time physical markets to material allegations of sustained cross-product price manipulation in forward financial markets. A major challenge is to develop and apply forward market analytical frameworks and models. This task is more difficult than for the real-time market. An adaptation of cross-product manipulation models from cash-settled financial markets provides an existence demonstration under uncertainty and asymmetric information. The implications of this analysis include strong empirical predictions about necessary randomized strategies that are not likely to be observed or sustainable in electricity markets. Absent these randomized strategies and other market imperfections, the means for achieving sustained forward market price manipulation remains unexplained.
ISSN:0195-6574
1944-9089
DOI:10.5547/01956574.40.5.cpre