Manipulation of commodity prices
This paper has shown, in a two-period model, the five conditions in which an informed speculator (henceforth informed) has to satisfy before he can successfully exploit the vulnerability of futures pricing in a highly rational and efficient market to mislead firms into buying mispriced forward contr...
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| Main Authors: | , , |
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| Other Authors: | |
| Format: | Final Year Project |
| Language: | English |
| Published: |
2010
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| Subjects: | |
| Online Access: | http://hdl.handle.net/10356/33610 |
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| Institution: | Nanyang Technological University |
| Language: | English |
| Summary: | This paper has shown, in a two-period model, the five conditions in which an informed speculator (henceforth informed) has to satisfy before he can successfully exploit the vulnerability of futures pricing in a highly rational and efficient market to mislead firms into buying mispriced forward contracts over-the-counter (owned by the informed). The five conditions are described as follows. First, the informed must have received either an uninformative or a medium signal about the future state of demand. Second, both informed and noise traders must submit a buy order in the Exchange, so that the futures price is artificially bided up. Third, the informed must set a level of strategic storage in the spot market, after the Exchange closes, such that the forward is priced slightly below the firms’ trigger prices. Fourth, this level of strategic storage must also allow firms to enjoy an expected net benefit of hedging. Last, the informed must be able to earn a positive manipulative profit from this level of storage. |
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