The forecasting power of medium-term futures contracts

Haugom, Erik; Hoff, Guttorm André; Mortensen, Maria; Molnár, Péter; Westgaard, Sjur

doi:10.21314/jem.2014.108

Cited by 10 publications

(8 citation statements)

References 16 publications

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“…This work is revisited by Weron and Zator (2014), who evidence the positive impact of water reservoir seasonal levels on the risk premium. Haugom et al (2014) study the weekly futures traded on the Nordic power market, where they find a positive risk premium that varies across the seasons and tends to diminish over time; they do not, however, reject the unbiased forward hypothesis. These results are in line with those of Haugom and Ullrich (2012) for the day-ahead futures traded on the Pennsylvania-New Jersey-Maryland (PJM) market.…”

Section: Introductionmentioning

confidence: 83%

The Iberian electricity market: analysis of the risk premium in an illiquid market

Ferreira¹,

Sebastião²

2018

JEM

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This paper analyzes the risk premium in the base-load monthly futures contracts traded on the Iberian electricity market (MIBEL) between July 1, 2006 and March 31, 2017. During this time span, the ex post risk premium on the last trading day presented a relative mean value of 5:77% as well as negative skewness, excess kurtosis and some persistence. The risk premium depended on the season of the year, with the absolute value for winter futures being more than five times higher than for summer futures. The absolute risk premium and its volatility decreased nonlinearly throughout the remaining trading days until maturity. There is no statistical evidence for rejecting an unbiased forward hypothesis; however, the sequence of futures prices approaching maturity showed some predictive power as regards the risk premium. The futures price path between seven and three days prior to delivery explained around 28% of the variability in the risk premium, and there is some evidence that this information can be used to successfully forecast the risk premium signal.

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Section: Introductionmentioning

confidence: 83%

The Iberian electricity market: analysis of the risk premium in an illiquid market

Ferreira¹,

Sebastião²

2018

JEM

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“…In particular, for shorter maturities (i.e., 1 week) risk premiums are typically positive on average, whereas for longer maturities (i.e., 6 weeks) they are negative. Bierbrauer et al () and Haugom et al () obtain similar results for medium‐term futures contracts examining prices from the EEX and Nord Pool markets, respectively. A reasonable explanation for negative risk premiums (i.e., contango markets) in electricity futures prices is a higher incentive for hedging on the demand side relative to the supply side, because of the non‐storability of electricity as compared to the limited and costly but still existent storage capabilities of fuel (water, coal, oil, and gas).…”

Section: Emission Allowances and The Convenience Yieldmentioning

confidence: 99%

Convenience Yields and Risk Premiums in the EU‐ETS—Evidence from the Kyoto Commitment Period

Trück

Weron

2016

Journal of Futures Markets

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We examine convenience yields and risk premiums in the EU‐wide CO2 emissions trading scheme (EU‐ETS) during the first Kyoto commitment period (2008–2012). We find that the market has changed from initial backwardation to contango with significantly negative convenience yields in futures contracts. We further examine the impact of interest rate levels in the Eurozone, the increasing level of surplus allowances and banking, as well as returns, variance, or skewness in the EU‐ETS spot market. Our findings suggest that the drop in risk‐free rates during and after the financial crisis has impacted on the deviation from the cost‐of‐carry relationship for emission allowances (EUA) futures contracts. Our results also illustrate a negative relationship between convenience yields and the increasing level of inventory during the first Kyoto commitment period, providing an explanation for the high negative convenience yields. Finally, we find that market participants are willing to pay an additional risk premium in the futures market for a hedge against increased volatility in EUA prices. Overall, our results contribute to the literature on the determinants and empirical properties of convenience yields and risk premiums for this relatively new class of assets. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 36:587–611, 2016

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“…There is no consensus on whether it is most appropriate to define the forward premium logarithmically or as a percentage. Haugom et al [17] argued that the logarithmic forward premium is most suited for OLS regression purposes. The logarithmic definition was used by Botterud et al [3], Haugom et al [17] and Haugom et al [18], whereas the percentage definition of the forward premium was used by Daskalakis and Markellos [16] and Longstaff and Wang [7].…”

Section: Definitionsmentioning

confidence: 99%

Determinants of the Forward Premium in the Nord Pool Electricity Market

2020

Self Cite

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Nord Pool is the leading power market in Europe. It has been documented that the forward contracts traded in this market exhibit a significant forward premium, which could be a sign of market inefficiency. Efficient power markets are important, especially when there is a goal to increase the share of the power mix stemming from renewable energy sources. We therefore contribute to the understanding of this topic by examining how the forward premium in the Nord Pool market depend on several economic and physical conditions. We utilise two methods: ordinary least squares and quantile regression. The results show that the reservoir level and the basis (the difference between the forward and spot price) have a significant impact on the forward premium. The realised volatility of futures prices and the implied volatility of the stock market have strong effects on both the conditional lower and upper tails of the forward premium. We also find that, as the market has matured, the forward premium has decreased, indicating an increase in market efficiency.

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The forecasting power of medium-term futures contracts

Abstract: This study investigates whether weekly futures prices, covering the time period 1996-2013, are

Cited by 10 publications

References 16 publications

The Iberian electricity market: analysis of the risk premium in an illiquid market

The Iberian electricity market: analysis of the risk premium in an illiquid market

Convenience Yields and Risk Premiums in the EU‐ETS—Evidence from the Kyoto Commitment Period

Determinants of the Forward Premium in the Nord Pool Electricity Market

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