Forward Premia in Electricity Markets: Two Caveats

Silvester Van Koten

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: Two important caveats are made for applications and empirical tests of Bessembinder and Lemmon's (2002) theoretical risk premium model for forward premia. Firstly, (relative) forward premia (eventually) decrease in mean power demand. Secondly, empirical tests should use a definition of mean power demand in line with Bessembinder and Lemmon's (2002) theory to avoid confounds.

Keywords: forward premia; electricity markets; energy economics; mean power demand; financial markets (search for similar items in EconPapers)
JEL-codes: G13 G17 L94 Q41 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-ene, nep-fmk and nep-reg
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