The John M. Olin Center

Paper Abstract

Untitled Document

68. Reid B. Stevens & Jeffery Y. Zhang, Slipping Through the Cracks: Detecting Manipulation in Regional Commodity Markets, 04/2017.

Abstract: Between 2010 and 2014, the regional price of aluminum in the United States (“Midwest premium”) was manipulated through the exercise of market power in the storage market. We first show there was an increase of $0.07 per pound in the regional price of aluminum relative to its production complement, copper. We show this increase was driven by a single financial firm’s accumulation of aluminum inventories. Since this scheme targeted the regional commodity price, regulators monitoring only spot and futures prices would not have noticed anything peculiar. We conclude with an algorithm for real-time detection of similar manipulation schemes in regional markets.