EconPapers    
Economics at your fingertips  
 

Relationship between spot and futures prices in electricity markets: Pitfalls of regression analysis

Michał Zator

No HSC/13/06, HSC Research Reports from Hugo Steinhaus Center, Wroclaw University of Science and Technology

Abstract: This work discusses potential pitfalls of applying linear regression models to explaining the relationship between spot and futures prices in electricity markets. We briefly introduce the theory for the analysis of the spot-futures price relationship and highlight selected issues of multiple regression models.We show the bias coming from the simultaneity problem, analyze the effect of correlated measurement errors in both dependent and independent variables and discuss the properties of coefficients estimated in the presence of a seasonal component and without it. We show that these problems appear in the work of Botterud, Kristiansen, and Ilic (2010), who analyze the relationship between spot and futures prices in the Nord Pool power exchange. We study a very similar dataset and show that the conclusions of Botterud et al. are partially invalid or misleading. In particular, the effect of the water reservoir level on the risk premium is likely to be positive, which is to be expected, but contradicts Botterud et al. results. In addition we show that the coeffcients obtained by Botterud et al. can be interpreted only when we consider the ex-post risk premium and not the ex-ante one.

Keywords: electricity markets; risk premium; convenience yield; linear regression; seasonality (search for similar items in EconPapers)
JEL-codes: C20 C26 C51 G13 Q40 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2013-08-16
New Economics Papers: this item is included in nep-reg
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.im.pwr.wroc.pl/~hugo/RePEc/wuu/wpaper/HSC_13_06.pdf Original version, 2013 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to kkm.im.pwr.edu.pl:443 (Bad file descriptor) (http://www.im.pwr.wroc.pl/~hugo/RePEc/wuu/wpaper/HSC_13_06.pdf [301 Moved Permanently]--> https://kkm.im.pwr.edu.pl/~hugo/RePEc/wuu/wpaper/HSC_13_06.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wuu:wpaper:hsc1306

Access Statistics for this paper

More papers in HSC Research Reports from Hugo Steinhaus Center, Wroclaw University of Science and Technology Contact information at EDIRC.
Bibliographic data for series maintained by Rafal Weron ().

 
Page updated 2025-03-22
Handle: RePEc:wuu:wpaper:hsc1306