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The Iberian electricity market:Price dynamics and risk premium in an illiquid market

Author

Listed:
  • Márcio Ferreira

    (CFisUC, Department of Physics of the University of Coimbra)

  • Hélder Sebastião

    (CeBER and Faculty of Economics of the University of Coimbra)

Abstract

This paper studies the relationship between the electricity spot and futures prices in the Iberian electricity market, with a special focus on the ex-post risk premium of monthly futures contracts. The study covers the period from 1 July 2006 to 31 March 2017, during which 128 monthly futures contracts were traded. We show that the risk premium is dynamic and presents on average a negative value. Within contracts, the risk premium presents a non-linear dependence on the remaining trading days until maturity. There is no statistical evidence for rejecting the unbiased forward hypothesis of the futures prices. However, the sequence of futures prices near maturity has some predictive power on the risk premium.

Suggested Citation

  • Márcio Ferreira & Hélder Sebastião, 2018. "The Iberian electricity market:Price dynamics and risk premium in an illiquid market," CeBER Working Papers 2018-02, Centre for Business and Economics Research (CeBER), University of Coimbra.
    • Handle: RePEc:gmf:papers:2018-02
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    File URL: https://www.uc.pt/en/uid/ceber/WorkingPapers/wp/wp_2018/segundowp
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    Cited by:

    1. George P. Papaioannou & Christos Dikaiakos & Christos Kaskouras & George Evangelidis & Fotios Georgakis, 2020. "Granger Causality Network Methods for Analyzing Cross-Border Electricity Trading between Greece, Italy, and Bulgaria," Energies, MDPI, vol. 13(4), pages 1-26, February.

    More about this item

    Keywords

    electricity markets; MIBEL; futures contracts; risk premium; price dynamics;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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