ScholarLens Back to search
2010•The Energy JournalRequires access

Bilateral Forward Contracts and Spot Prices

Nodir Adilov

Open publisher page 6 citations

Abstract

Allaz and Vila (1993) have shown that forward markets could mitigate market power and improve efficiency. This paper shows that efficiency-improving effect of forward markets is sensitive to the assumption that market participants behave like rational expectations agents when forecasting prices. The existence of forward contracts could increase spot prices and hurt efficiency if buyers engage in bilateral forward contracts and forward rates are influenced by historic prices. These findings have important policy implications for the electricity industry.

About this research paper

What this paper is about

Allaz and Vila (1993) have shown that forward markets could mitigate market power and improve efficiency. This paper shows that efficiency-improving effect of forward markets is sensitive to the assumption that market participants behave like rational expectations agents when forecasting prices. The existence of forward contracts could increase spot prices and hurt efficiency if buyers engage in bilateral forward contracts and forward rates are influenced by historic prices. These findings have important policy implications for the electricity industry.

Why it matters

OpenAlex reports 6 citations for this work. Citation counts describe recorded attention and do not establish research quality.

Key contribution

A contribution statement is not available in the OpenAlex record.

Method / approach

Method details are not available in the OpenAlex metadata.

Main findings

Findings are not separately available in the OpenAlex metadata.

Limitations

Limitations are not available in the OpenAlex metadata.

Applications

Application details are not available in the OpenAlex metadata.

Available abstract

Allaz and Vila (1993) have shown that forward markets could mitigate market power and improve efficiency. This paper shows that efficiency-improving effect of forward markets is sensitive to the assumption that market participants behave like rational expectations agents when forecasting prices. The existence of forward contracts could increase spot prices and hurt efficiency if buyers engage in bilateral forward contracts and forward rates are influenced by historic prices. These findings have important policy implications for the electricity industry.

Key concepts: Forward contract, Spot contract, Forward market, Forward price, Spot market, Economics, Forward rate, Electricity

Related papers

Related paper 1Related paper 2Related paper 3
Back to paper searchBrowse research topicsOriginal source
Bilateral Forward Contracts and Spot Prices — Research Paper | ScholarLens