 The Hedging Performance of Electricity Futures on the Nordic Power Exchange Nord PoolNo 2000:15, Working Papers from Lund University, Department of Economics Abstract: The Nordic Power Exchange (Nord Pool), the first multinational exchange for electricity trading, has existed since January 1996. Spot and futures contracts are traded on this exchange and its typical characteristics are very high volatility as well as non-normally distributed returns. In this paper I look at electricity futures and how they can be used for short term hedging in the spot market. I study the minimum variance hedge ratio and how it can be estimated in different ways. The traditional naive hedge and the OLS hedge are compared out-of-sample to more elaborate moving average and GARCH hedges. The empirical results indicate some gains from hedging with futures despite the lack of straight-forward arbitrage possibilities in the electricity market. Furthermore, I find that the relative performance of the different variance minimizing hedges depends on whether unconditional or conditional variances are studied. Keywords: electricity prices; hedging. (search for similar items in EconPapers) Published in Applied Economics, 2003, pages 1-11. There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hhs:lunewp:2000_015 Access Statistics for this paper More papers in Working Papers from Lund University, Department of Economics School of Economics and Management, Box 7080, S-22007 Lund, Sweden. Contact information at EDIRC. |
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