The biased short-term futures price at Nord Pool: can it really be a risk premium?

Gjølberg, Ole; Brattested, Trine-Lise

doi:10.21314/jem.2011.053

Cited by 8 publications

(25 citation statements)

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“…Still, they find the error to be greatest in the winter months (December, January and February) and midsummer (June and July), when analyzing the forecast error by calendar month. Gjolberg and Brattested (2011) conclude there are highly significant forecast errors, and their magnitude can hardly be explained by the level 6 Weron and Zator (2013) find the impact to be positive, but, according to our definition of the risk premium, this corresponds to a negative impact. 7 In 2002, water reservoirs were well above normal during the summer.…”

Section: Earlier Findings On the Relationship Between Spot And Futurementioning

confidence: 79%

“…Following Haugom and Ullrich (2012), we look at the realized risk premium, ie, the difference between the futures price and the spot price at delivery. This allows us to compare our results with previous studies (see, for example, Botterud et al 2010;Gjolberg and Brattested 2011;Haugom and Ullrich 2012;Lucia and Torró 2011;Weron and Zator 2013). We add to previous research by investigating whether there is evidence of a systematic risk premium in the futures prices, and whether the prices are unbiased predictors of spot price.…”

Section: Introductionmentioning

confidence: 74%

“…Botterud et al (2010) find that the premium has a less distinct seasonal pattern than the spot price. Analyzing variations in the forecast error by season over the period from 1995 to 2008, Gjolberg and Brattested (2011) find that seasonality in general explains little. Still, they find the error to be greatest in the winter months (December, January and February) and midsummer (June and July), when analyzing the forecast error by calendar month.…”

Section: Earlier Findings On the Relationship Between Spot And Futurementioning

confidence: 99%

“…Consequently, such studies may not be comparable. When the realized risk premium is used, as in Lucia and Torró (2011), Gjolberg and Brattested (2011), Haugom and Ullrich (2012) and Weron and Zator (2013), it is assumed that the difference between the expected spot price and realized spot price acts as noise. The realized premium will then equal the sum of the expected risk premium and a noise term:…”

Section: Ex Ante and Ex Post Risk Premiumsmentioning

confidence: 99%

“…Gjolberg and Johnsen (2001) point out a possible abuse of market power from the producers' side, but have no statistical evidence to support this. Gjolberg and Brattested (2011) argue that if the forecast error is a risk premium, it should follow a seasonal pattern based on expected risk expectations. Bessembinder and Lemmon (2002) and Haugom and Ullrich (2012) find that the premium in the US market is greatest during summer.…”

Section: Earlier Findings On the Relationship Between Spot And Futurementioning

confidence: 99%

See 4 more Smart Citations

The forecasting power of medium-term futures contracts

Haugom¹,

Hoff²,

Mortensen³

et al. 2014

JEM

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Section: Earlier Findings On the Relationship Between Spot And Futurementioning

confidence: 79%

Section: Introductionmentioning

confidence: 74%

Section: Earlier Findings On the Relationship Between Spot And Futurementioning

confidence: 99%

Section: Ex Ante and Ex Post Risk Premiumsmentioning

confidence: 99%

Section: Earlier Findings On the Relationship Between Spot And Futurementioning

confidence: 99%

See 3 more Smart Citations

The forecasting power of medium-term futures contracts

Haugom¹,

Hoff²,

Mortensen³

et al. 2014

JEM

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Revisiting the relationship between spot and futures prices in the Nord Pool electricity market

Weron

Zator

2014

Energy Economics

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This work discusses potential pitfalls of applying linear regression models for explaining the relationship between spot and futures prices in electricity markets. In particular, the bias coming from the simultaneity problem, the effect of correlated measurement errors and the impact of seasonality on the regression results. Studying a 13-year long (1998-2010) price series of spot and futures prices at Nord Pool and employing regression models with GARCH residuals, we show that the impact of the water reservoir level on the risk premium is positive, which is to be expected, but contradicts the results of Botterud et al. (2010). We also show that after taking into account the seasonality of the water level, the storage cost theory proposed by Botterud et al. (2010) to explain the behavior of convenience yield has only limited support in the data.

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Pricing of electricity futures based on locational price differences: The case of Finland

2018

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We find that the pricing of Finnish electricity market futures has been inefficient during the latest 10 years, when the trading volumes of Electricity Price Area Differentials (EPADs) have more than doubled. Even though the calculated futures premium on EPADs is related to some risk measures and the variables capturing the demand and supply conditions in the spot electricity markets, there has been a significant positive excess futures premium in the Finnish market, and financial market participants should have been able to utilize this also in economic terms. This finding is new and relevant for the participants of the Nordic electricity markets also in the future, because both the speculative and hedging-based trading is increasing in the Nordic markets.

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The biased short-term futures price at Nord Pool: can it really be a risk premium?

Cited by 8 publications

References 0 publications

The forecasting power of medium-term futures contracts

The forecasting power of medium-term futures contracts

Revisiting the relationship between spot and futures prices in the Nord Pool electricity market

Pricing of electricity futures based on locational price differences: The case of Finland

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