California electricity futures: the NYMEX experience

It would be easy to attribute the collapse of the futures market in California electricity to the alleged manipulations of over-the-counter traders. This paper provides evidence to the contrary. Findings reveal an active market that lost the speculative and small investor interest, leaving hedgers to face hedgers in a volatile and less active arena. Hedge ratio analysis shows an erratic price-matching ability that many times suggested a long hedge when a short would be expected. Overall, contract failure could be attributed to inaccurate hedging opportunities and lack of speculative interest to keep the market going during lulls in hedging demand.