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A Strategic Analysis of Corners and Squeezes

Published online by Cambridge University Press:  09 June 2010

David J. Cooper  and
R. Glen Donaldson
David J. Cooper
Affiliation:
Department of Economics, University of Pittsburgh, Pittsburgh, PA 15260
R. Glen Donaldson
Affiliation:
Faculty of Commerce and Business Administration, 2053 Main Mall, University of British Columbia, Vancouver, B.C. Canada, V6T 1Z2.
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Abstract

We develop a dynamic game-theoretic model of a futures market in which prices can be manipulated by corner and squeeze. We investigate equilibrium trading strategies and the price dynamics these strategies produce. Price paths produced by our model can mimic observed prices for potentially comerable commodities and explain the volatility of certain prices even when no manipulations occur. Our model also generates occasional apparent price bubbles and accounts for the existence of normal backwardation in futures markets even when players are risk neutral.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 33 , Issue 1 , March 1998 , pp. 117 - 137
Copyright
Copyright © School of Business Administration, University of Washington 1998

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