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Forecasting Weekly Electricity Prices at Nord Pool

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Author Info
Hipòlit Torró (Universitat de València)

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Abstract

This paper analyses the forecasting power of weekly futures prices at Nord Pool. The forecasting power of futures prices is compared to an ARIMAX model of the spot price. The time series model contains lagged external variables such as: temperature, precipitation, reservoir levels and the basis (futures price less the spot price); and generally reflects the typical seasonal patterns in weekly spot prices. Results show that the time series model forecasts significantly beat futures prices when using the Diebold and Mariano (1995) test. Furthermore, the average forecasting error of futures prices reveals that they are significantly above the settlement spot price at the ‘delivery week’ and their size increases as the time to maturity increases. Those agents taking positions in weekly futures contracts at Nord Pool might find the estimated ARIMAX model useful for improving their expectation formation process for the underlying spot price.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2007.88.

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Date of creation: Sep 2007
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Handle: RePEc:fem:femwpa:2007.88

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Related research
Keywords: Electricity Markets; Power Derivatives and Forecasting Electricity Prices;

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Find related papers by JEL classification:
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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References listed on IDEAS
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  7. Avsar, S Gulay & Goss, Barry A, 2001. "Forecast Errors and Efficiency in the US Electricity Futures Market," Australian Economic Papers, Blackwell Publishing, vol. 40(4), pages 479-99, December. [Downloadable!] (restricted)
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  13. Robinson, Terry & Baniak, Andrzej, 2002. "The Volatility of Prices in the English and Welsh Electricity Pool," Applied Economics, Taylor and Francis Journals, vol. 34(12), pages 1487-95, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hipòlit Torró & Julio Lucia, 2008. "Short-term electricity futures prices: Evidence on the time-varying risk premium," Working Papers. Serie EC 2008-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
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