Electricity and Natural Gas Prices Sharing the Long-term Trend: Some Evidence from the Spanish Market

Dolores Furio and Javier Poblacion
Additional contact information
Dolores Furio: Department of Financial Economics, University of Valencia, Av. Los Naranjos, s/n 46022, Valencia, Spain,
Javier Poblacion: D.G. Supervisi n, Bank of Spain, C/Alcal 48, 28014, Madrid, Spain

International Journal of Energy Economics and Policy, 2018, vol. 8, issue 5, 173-180

Abstract: The relationship between electricity prices and fuel costs has been extensively studied. Many studies have analyzed the relationship between electricity and natural gas prices and found that electricity and natural gas futures prices are cointegrated. In this paper, using different factor models to jointly estimate the dynamics of both commodities, we show that natural gas and electricity prices are not only cointegrated but also share common long-term dynamics. This finding has crucial implications in terms of managing and hedging the risk faced by utilities, because the common long-term trend finding implies that the spark spread risk reflects only short-term effects. Moreover, these results indicate that by using prices from both commodities, it is possible to extract more information for estimation purposes.

Keywords: Stochastic Calculus; Natural Gas; Electricity (search for similar items in EconPapers)
JEL-codes: C32 C51 C60 G13 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.econjournals.com/index.php/ijeep/article/download/6854/3939 (application/pdf)
https://www.econjournals.com/index.php/ijeep/article/view/6854/3939 (text/html)

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:eco:journ2:2018-05-22

Access Statistics for this article

International Journal of Energy Economics and Policy is currently edited by Ilhan Ozturk

More articles in International Journal of Energy Economics and Policy from Econjournals
Bibliographic data for series maintained by Ilhan Ozturk ().