A Corner Solution: Commodity Futures, Default Fines, and Unintended Consequences
AbstractWe analyze one specific form of market manipulation - corners (or squeezes) in some commodity futures markets. In the analysis we focus on the role of institutional factors such as the storage capacity at the delivery point and the severity of fines imposed on defaulting shorts. We analyze the influence of these factors on the likelihood that a corner-style manipulation might occur.A reduction in storage capacity or an increase in the amount of fines imposed on defaulting shorts increases the probability of the occurrence. However, the latter factor seems quiet paradoxical. A high level of fines in case of default on a futures contract should decrease the number of defaults and thus make a futures contract more reliable. But, it tends to make the corners more frequent and thus makes the futures contracts less useful for the hedgers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by New York State Economics Association (NYSEA) in its journal New York Economic Review.
Volume (Year): 33 (2002)
Issue (Month): 1 ()
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Eric Doviak).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.