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

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  • Chiara Lo Prete
  • William W. Hogan
  • Bingyuan Liu
  • Jia Wang

Abstract

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.

Suggested Citation

  • Chiara Lo Prete & William W. Hogan & Bingyuan Liu & Jia Wang, 2019. "Cross-product Manipulation in Electricity Markets, Microstructure Models and Asymmetric Information," The Energy Journal, , vol. 40(5), pages 221-246, September.
    • Handle: RePEc:sae:enejou:v:40:y:2019:i:5:p:221-246
    DOI: 10.5547/01956574.40.5.cpre
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    References listed on IDEAS

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    1. Severin Borenstein & James Bushnell & Christopher R. Knittel & Catherine Wolfram, 2008. "Inefficiencies And Market Power In Financial Arbitrage: A Study Of California'S Electricity Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 347-378, June.
    2. Allen, Franklin & Gale, Douglas, 1992. "Stock-Price Manipulation," The Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 503-529.
    3. Dae‐Wook Kim & Christopher R. Knittel, 2006. "Biases In Static Oligopoly Models? Evidence From The California Electricity Market," Journal of Industrial Economics, Wiley Blackwell, vol. 54(4), pages 451-470, December.
    4. Alexander Shapiro & Jos Berge, 2002. "Statistical inference of minimum rank factor analysis," Psychometrika, Springer;The Psychometric Society, vol. 67(1), pages 79-94, March.
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