Inefficiencies and Market Power in Financial Arbitrage: A Study of California’s Electricity Markets
As with other commodities, electricity is often traded on both forward and spot markets. This was initially true in the restructured California electricity industry from 1998 to 2000. Though the power traded in the forward and spot markets was for delivery at the same times and locations, prices often differed in significant and predictable ways. We consider several explanations for this apparent inefficiency, concluding that uncertainty about regulatory penalties for trading in the spot market caused most firms to avoid trading on inter-market price differences. The few firms that did carry out these trades did not find it profit-maximizing to eliminate the price differences. Skyrocketing prices in the summer of 2000, however, changed the major buyers’ (utilities’) incentives and increased the price differentials between the markets.
|Date of creation:||16 Nov 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (530) 752-0741
Fax: (530) 752-9382
Web page: http://www.econ.ucdavis.edu
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Francis A. Longstaff & Ashley W. Wang, 2004. "Electricity Forward Prices: A High-Frequency Empirical Analysis," Journal of Finance, American Finance Association, vol. 59(4), pages 1877-1900, 08.
- Zitzewitz, Eric, 2002.
"Who Cares About Shareholders? Arbitrage-Proofing Mutual Funds,"
1749, Stanford University, Graduate School of Business.
- Eric Zitzewitz, 2003. "Who Cares About Shareholders? Arbitrage-Proofing Mutual Funds," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(2), pages 245-280, October.
- Whitney K. Newey & Kenneth D. West, 1986.
"A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix,"
NBER Technical Working Papers
0055, National Bureau of Economic Research, Inc.
- Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
- Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
- Bushnell, James & Wolfram, Catherine, 2008. "Electricity Markets," Staff General Research Papers 31547, Iowa State University, Department of Economics.
- Bushnell, James & Mansur, Erin T., 2005. "Consumption Under Noisy Price Signals: A Study of Electricity Retail Rate Deregulation in San Diego," Staff General Research Papers 13142, Iowa State University, Department of Economics.
- David C. Parsley & Shang-Jin Wei, 1996. "Convergence to the Law of One Price Without Trade Barriers or Currency Fluctuations," NBER Working Papers 5654, National Bureau of Economic Research, Inc.
- repec:tpr:qjecon:v:111:y:1996:i:4:p:1211-36 is not listed on IDEAS
- David C. Parsley & Shang-Jin Wei, 1996. "Convergence to the Law of One Price Without Trade Barriers or Currency Fluctuations," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1211-1236.
- Kaminsky, Graciela, 1993. "Is There a Peso Problem? Evidence from the Dollar/Pound Exchange Rate, 1976-1987," American Economic Review, American Economic Association, vol. 83(3), pages 450-72, June.
When requesting a correction, please mention this item's handle: RePEc:cda:wpaper:06-30. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Scott Dyer)
If references are entirely missing, you can add them using this form.