Price Formation and Intertemporal Arbitrage within a Low-Liquidity Framework: Empirical Evidence from European Natural Gas Markets
AbstractIn this study, the informational efficiency of the European natural gas market is analyzed by empirically investigating price formation and arbitrage efficiency between spot and futures markets. Econometric approaches are specified that explicitly account for nonlinearities and the low liquidity-framework of the considered gas hubs. The empirical results reveal that price discovery takes place on the futures market, while the spot price subsequently follows the futures market price. Furthermore, there is empirical evidence of significant market frictions hampering intertemporal arbitrage. UK’s NBP seems to be the hub at which arbitrage opportunities are exhausted most efficiently, although there is convergence in the degree of intertemporal arbitrage efficiency over time at the hubs investigated.
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Bibliographic InfoPaper provided by Energiewirtschaftliches Institut an der Universitaet zu Koeln in its series EWI Working Papers with number 2013-14.
Length: 33 pages
Date of creation: 12 Aug 2013
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natural gas market; informational efficiency; liquidity; nonlinear causality; threshold error correction; Kalman filter;
Find related papers by JEL classification:
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- 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
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-23 (All new papers)
- NEP-CIS-2013-08-23 (Confederation of Independent States)
- NEP-ENE-2013-08-23 (Energy Economics)
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