A first look at the empirical relation between spot and futures electricity prices in the United States
✍ Scribed by Hany A. Shawky; Achla Marathe; Christopher L. Barrett
- Publisher
- John Wiley and Sons
- Year
- 2003
- Tongue
- English
- Weight
- 192 KB
- Volume
- 23
- Category
- Article
- ISSN
- 0270-7314
No coin nor oath required. For personal study only.
✦ Synopsis
Abstract
In this article we investigate the statistical properties of wholesale electricity spot and futures prices
traded on the New York Mercantile Exchange for delivery at the California–Oregon Border. Using daily data
for the years 1998 and 1999, we find that many of the characteristics of the electricity market can be viewed to
be broadly consistent with efficient markets. The futures risk premium for 6‐month futures contracts is
estimated to be 0.1328% per day or about 4% per month. Using a GARCH specification, we estimate
minimum variance hedge ratios for electricity futures. Finally, we study the dynamic relation between spot and
futures prices using an Exponential GARCH model and between the spot and futures returns series using a vector
autoregression. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:931–955, 2003