The forward premium in electricity markets: An experimental study

Silvester Van Koten

Energy Economics, 2021, vol. 94, issue C

Abstract: I perform the first experimental test 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. However, the existing empirical evidence is mixed, possibly due to 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: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: The Forward Premium in Electricity Markets: An Experimental Study (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:94:y:2021:i:c:s0140988320303996

DOI: 10.1016/j.eneco.2020.105059

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