 The overnight risk premium in electricity forward contractsStein-Erik Fleten, Liv Aune Hagen, Maria Tandberg Nygård, Ragnhild Smith-Sivertsen and Johan M. Sollie Energy Economics, 2015, vol. 49, issue C, 293-300 Abstract: We analyze the risk premium on electricity forward contracts traded for the Nordic and German/Austrian electricity markets. We argue that finding risk premiums by analyzing overnight returns is more relevant than the frequently used ex post approach. The derivatives in these markets can be characterized as trading products and hedging products. Each contract shows a clear increase in trading volume and liquidity when approaching maturity. We link this to a testable hypothesis where financial traders are compensated for holding price risk, and where the sign and magnitude of the risk premium changes depending on the hedging pattern of producers and retailers. Incorporating this in regressions we find that there are higher risk premiums in the period before the forwards become front products, compared to the risk premiums in the front period. Quarterly and monthly contracts show the most significant results. Keywords: Risk premium estimation; Electricity markets; Forward markets; Liquidity premium; Electricity swaps; Front product effect (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:49:y:2015:i:c:p:293-300 DOI: 10.1016/j.eneco.2014.12.022 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.