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On the demand side, the market design established a principal\u2013agent relationship between the markets' buyers (principal) and their supervisory authority (agent). The agent had very limited incentives to shift reserve purchases to the lower priced hour\u2010ahead markets. On the supply side, the market design raised substantial entry barriers by precluding purely speculative trading and by introducing a complicated code of conduct that induced uncertainty about which actions were subject to regulatory scrutiny. We use a high\u2010dimensional vector moving average model to estimate the premia and conduct correct inferences. To obtain exact maximum likelihood estimates of the model, we develop a new EM algorithm that seamlessly incorporates missing data and applies directly to general moving average time series models. Our algorithm uses only analytical expressions: the Kalman filter and a fixed interval smoother in the E step and least squares\u2010type regressions in the M step. Copyright \u00a9 2007 John Wiley &amp; Sons, Ltd.<\/jats:p>","DOI":"10.1002\/jae.982","type":"journal-article","created":{"date-parts":[[2007,10,4]],"date-time":"2007-10-04T13:46:28Z","timestamp":1191505588000},"page":"1127-1144","source":"Crossref","is-referenced-by-count":0,"title":["Efficiency of the California electricity reserves market"],"prefix":"10.1002","volume":"22","author":[{"given":"Konstantinos","family":"Metaxoglou","sequence":"first","affiliation":[],"role":[{"role":"author","vocabulary":"crossref"}]},{"given":"Aaron","family":"Smith","sequence":"additional","affiliation":[],"role":[{"role":"author","vocabulary":"crossref"}]}],"member":"311","published-online":{"date-parts":[[2007,10,4]]},"reference":[{"key":"e_1_2_7_2_1","doi-asserted-by":"publisher","DOI":"10.1111\/1540-6261.00463"},{"key":"e_1_2_7_3_1","unstructured":"BorensteinS BushnellJ KnittelCR WolframC.2004.Inefficiencies and market power in financial arbitrage: a study of California's electricity markets.POWER 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