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Forecasting Weekly Electricity Prices at Nord Pool

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  • Hipòlit Torró

    (Universitat de València)

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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Bibliographic Info

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

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

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