The Iberian electricity market:Price dynamics and risk premium in an illiquid market

Márcio Ferreira and Helder Sebastião
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Márcio Ferreira: CFisUC, Department of Physics of the University of Coimbra

No 2018-02, CeBER Working Papers from Centre for Business and Economics Research (CeBER), University of Coimbra

Abstract: This paper studies the relationship between the electricity spot and futures prices in the Iberian electricity market, with a special focus on the ex-post risk premium of monthly futures contracts. The study covers the period from 1 July 2006 to 31 March 2017, during which 128 monthly futures contracts were traded. We show that the risk premium is dynamic and presents on average a negative value. Within contracts, the risk premium presents a non-linear dependence on the remaining trading days until maturity. There is no statistical evidence for rejecting the unbiased forward hypothesis of the futures prices. However, the sequence of futures prices near maturity has some predictive power on the risk premium.

Keywords: electricity markets; MIBEL; futures contracts; risk premium; price dynamics (search for similar items in EconPapers)
JEL-codes: G13 G14 Q40 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2018-02
New Economics Papers: this item is included in nep-ene and nep-reg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:gmf:papers:2018-02

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