ABSTRACT
This article investigates the forward premium of futures contracts in the Nordic power market for the time period from January 2004 to December 2013. We find that futures prices are biased predictors of the subsequent spot prices and that there is a significant forward premium in the Nord Pool market, particularly during the winter and autumn. We analyze the impact from several factors on the forward premium. The spot price, and the deviation of water inflow from its usual level, positively affect the forward premium. The variance of the spot price also has a positive effect on the forward premium, but only for the contract closest to delivery.
Notes
1. Interested readers are referred to the following studies for a thorough review of this research area (in addition to those mentioned in the text): Amundsen And Bergman (Citation2006), Benth, Cartea, and Kiesel (Citation2008), Botterud, Bhattacharyya, and Ilic (Citation2002), Cartea and Villaplana (Citation2008), Fridolfsson and Tangerås (Citation2009), Gjolberg and Johnsen (Citation2001), Hjalmarsson (Citation2000), Longstaff and Wang (Citation2004), Lucia and Schwartz (Citation2002), Lucia and Torró (Citation2011), Mork (Citation2006), Redl and Bunn (Citation2013), Stan (Citation2012), Veka (Citation2013), Weron and Misiorek (Citation2008).
2. Starting from 2006, all contracts were quoted in Euros. We use the daily exchange rates from Norges Bank (Norges Bank Citation2013) to convert the futures prices to NOK.
3. Winter is defined as week 47 to 7. The other seasons are defined using consecutive thirteen-week periods.
4. Hereinafter, we will refer to a futures contract with one week to delivery as F1, a futures contract with two weeks to delivery as F2, and so on.
5. The plots for the average and volume prices are very similar, thus not reported.
6. As for the F1 contract, the average and volume prices are very similar to the closing prices and are not reported.
7. The impact of the temperature on the electricity consumption is studied in, e.g., Bašta and Helman (Citation2013) and Do, Lin, and Molnár (Citation2016).
8. The damped models excluding the spot price do not have a significant INFD coefficient for LFP4.
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