Academic Identity
I am assistant professor of Sociology at Barnard College. My book (and my dissertation research) is a comparative study of technology and futures trading, an ethnography of open outcry and electronic traders. My current research is on how art specialists price cultural commodities, particularly how categories and commensuration work in the secondary/resale fine arts market. I teach courses in economic sociology, organizations, and gender.
Professional Identity
I occasionally consult, focusing on organizational change, the future of technology and financial markets, and environmental markets. I do strategic assessments of markets, technology and organizational design, with qualitative and quantitative components. If you are interested, please email me.
Personal Identity
I grew up outside Chicago, and went to school(s) at Wesleyan University, USC, and Northwestern University. I currently live in New York, with a partner who is a marketing manager for an educational nonprofit. I love movies, like to cook, and I can do a mean lindy swing out. I am INTP.
November 29, 2007
Southwest’s Profitable Hedge
Filed under: Markets — Peter @ 3:16 pm
Soutwest Airlines apparently has less to worry about in the recent spike in oil prices than its competitors. Why? Because they used futures markets to hedge the risk of rises in future oil prices. So, when the price of oil goes up, the cost of running airplanes gets more expensive, but their futures contracts become much more valuable. One exec quipped that he wasn’t sure whether he was hoping for oil prices to go up or down…down would be cheaper for refueling, but up screwed their competitors with no added costs to SW.
This is what futures markets are really good at, when those who have risk actually use markets to hedge them, and those who speculate take those risks on. This makes it difficult if not impossible to extract out those people (whom I earlier argued should be ousted from oil futures trading) using oil futures as investment vehicles. I would normally say that perhaps what’s missing are more stories about the real-world benefits of speculation and hedging, but actually if you look more closely at the graphic, you can see that part of the problem is that no other airline was doing this at all. In the article, they note that many airlines were ‘too busy’ with other stuff (merge! dominate!) during better days to worry about oil prices and whatnot.
As an aside, my uncle Steve (who teaches courses on markets in the Business Institutions Program at Northwestern) pointed me to an intrepid student of his once, who did a senior thesis on the potential use of weather futures by Wrigleyville merchants to hedge against rainouts during summers when Cubs games dramatically affect their businesses. To my knowledge no one uses them in this way, and they didn’t really even seem receptive to this kind of analysis.
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