The Forward Premium in Electricity Markets: An Experimental Study

Silvester Van Koten

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

Abstract: An economic laboratory experiment is used to test the validity of Bessembinder and Lemmon's (2002) seminal risk premium theory. The theory predicts that forward premia in electricity markets are determined by the statistical properties of demand. The existing empirical evidence is mixed, possibly as a result of the lack of observability of key variables. Specifically, the experiment tests if an increase in the variance of demand makes the forward premia more negative for specific parameters and implementation details. The experimental results corroborate the theoretical predictions.

Keywords: forward premia; electricity markets; economic experiments (search for similar items in EconPapers)
JEL-codes: C92 G13 G40 L94 Q47 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-ene, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: The forward premium in electricity markets: An experimental study (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp656

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