IDEAS home Printed from https://ideas.repec.org/p/fem/femwpa/2007.88.html
   My bibliography  Save this paper

Forecasting Weekly Electricity Prices at Nord Pool

Author

Listed:
  • 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.

Suggested Citation

  • Hipòlit Torró, 2007. "Forecasting Weekly Electricity Prices at Nord Pool," Working Papers 2007.88, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2007.88
    as

    Download full text from publisher

    File URL: https://www.feem.it/m/publications_pages/NDL2007-088.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Michael Hoel & Finn R. Førsund, 2004. "Properties of a Non-Competitive Electricity Market Dominated by Hydroelectric Power," Working Papers 2004.86, Fondazione Eni Enrico Mattei.
    2. M. Angeles Carnero & Siem Jan Koopman & Marius Ooms, 2003. "Periodic Heteroskedastic RegARFIMA Models for Daily Electricity Spot Prices," Tinbergen Institute Discussion Papers 03-071/4, Tinbergen Institute.
    3. Avsar, S Gulay & Goss, Barry A, 2001. "Forecast Errors and Efficiency in the US Electricity Futures Market," Australian Economic Papers, Wiley Blackwell, vol. 40(4), pages 479-499, December.
    4. Jian Yang & David A. Bessler & David J. Leatham, 2001. "Asset storability and price discovery in commodity futures markets: A new look," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 21(3), pages 279-300, March.
    5. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    6. Sailor, David J. & Muñoz, J.Ricardo, 1997. "Sensitivity of electricity and natural gas consumption to climate in the U.S.A.—Methodology and results for eight states," Energy, Elsevier, vol. 22(10), pages 987-998.
    7. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    8. Sean D. Campbell & Francis X. Diebold, 2005. "Weather Forecasting for Weather Derivatives," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 6-16, March.
    9. Pardo, Angel & Meneu, Vicente & Valor, Enric, 2002. "Temperature and seasonality influences on Spanish electricity load," Energy Economics, Elsevier, vol. 24(1), pages 55-70, January.
    10. Robert W. Kolb, 1996. "The systematic risk of futures contracts," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 16(6), pages 631-654, September.
    11. Henley, Andrew & Peirson, John, 1998. "Residential energy demand and the interaction of price and temperature: British experimental evidence," Energy Economics, Elsevier, vol. 20(2), pages 157-171, April.
    12. Goto, Mika & Karolyi, G. Andrew, 2004. "Understanding Electricity Price Volatility within and across Markets," Working Paper Series 2004-12, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    13. W. David Walls, 1999. "Volatility, volume and maturity in electricity futures," Applied Financial Economics, Taylor & Francis Journals, vol. 9(3), pages 283-287.
    14. Hany A. Shawky & Achla Marathe & Christopher L. Barrett, 2003. "A first look at the empirical relation between spot and futures electricity prices in the United States," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(10), pages 931-955, October.
    15. Terry Robinson & Andrzej Baniak, 2002. "The volatility of prices in the English and Welsh electricity pool," Applied Economics, Taylor & Francis Journals, vol. 34(12), pages 1487-1495.
    16. Moulton, Jonathan S., 2005. "California electricity futures: the NYMEX experience," Energy Economics, Elsevier, vol. 27(1), pages 181-194, January.
    17. Alvaro Escribano & J. Ignacio Peña & Pablo Villaplana, 2011. "Modelling Electricity Prices: International Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73(5), pages 622-650, October.
    18. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
    19. Harrison Hong, 2000. "A Model of Returns and Trading in Futures Markets," Journal of Finance, American Finance Association, vol. 55(2), pages 959-988, April.
    20. Peirson, John & Henley, Andrew, 1994. "Electricity load and temperature : Issues in dynamic specification," Energy Economics, Elsevier, vol. 16(4), pages 235-243, October.
    21. Fama, Eugene F & French, Kenneth R, 1987. "Commodity Futures Prices: Some Evidence on Forecast Power, Premiums,and the Theory of Storage," The Journal of Business, University of Chicago Press, vol. 60(1), pages 55-73, January.
    22. Bessembinder, Hendrik, 1992. "Systematic Risk, Hedging Pressure, and Risk Premiums in Futures Markets," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 637-667.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pietz, Matthäus, 2009. "Risk premia in electricity wholesale spot markets: empirical evidence from Germany," CEFS Working Paper Series 2009-11, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    2. Paraschiv, Florentina & Erni, David & Pietsch, Ralf, 2014. "The impact of renewable energies on EEX day-ahead electricity prices," Energy Policy, Elsevier, vol. 73(C), pages 196-210.
    3. Ronald Huisman & Victoria Stradnic & Sjur Westgaard, 2013. "Renewable energy and electricity prices: indirect empirical evidence from hydro power," Working Papers 2013/24, Institut d'Economia de Barcelona (IEB).
    4. 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).
    5. Pietz, Matthäus, 2009. "Risk premia in the German electricity futures market," CEFS Working Paper Series 2009-07, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Torro, Hipolit, 2009. "Assessing the influence of spot price predictability on electricity futures hedging," MPRA Paper 18892, University Library of Munich, Germany.
    2. Matthias Ritter, 2012. "Can the market forecast the weather better than meteorologists?," SFB 649 Discussion Papers SFB649DP2012-067, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    3. Baumeister, Christiane, 2021. "Measuring Market Expectations," CEPR Discussion Papers 16520, C.E.P.R. Discussion Papers.
    4. Miffre, Joëlle, 2016. "Long-short commodity investing: A review of the literature," Journal of Commodity Markets, Elsevier, vol. 1(1), pages 3-13.
    5. Martínez, Beatriz & Torró, Hipòlit, 2015. "European natural gas seasonal effects on futures hedging," Energy Economics, Elsevier, vol. 50(C), pages 154-168.
    6. Chang, Yoosoon & Kim, Chang Sik & Miller, J. Isaac & Park, Joon Y. & Park, Sungkeun, 2016. "A new approach to modeling the effects of temperature fluctuations on monthly electricity demand," Energy Economics, Elsevier, vol. 60(C), pages 206-216.
    7. Caporin, Massimiliano & Preś, Juliusz & Torro, Hipolit, 2012. "Model based Monte Carlo pricing of energy and temperature Quanto options," Energy Economics, Elsevier, vol. 34(5), pages 1700-1712.
    8. Philipp Adämmer & Martin T. Bohl, 2018. "Price discovery dynamics in European agricultural markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(5), pages 549-562, May.
    9. Jonathan Kearns, 2007. "Commodity Currencies: Why Are Exchange Rate Futures Biased if Commodity Futures Are Not?," The Economic Record, The Economic Society of Australia, vol. 83(260), pages 60-73, March.
    10. Dimitrios Koutmos, 2020. "Market risk and Bitcoin returns," Annals of Operations Research, Springer, vol. 294(1), pages 453-477, November.
    11. Philipp Adämmer & Martin T. Bohl & Ernst-Oliver Ledebur, 2015. "Price Transmissions During Financialization and Turmoil: New Evidence from North American and European Agricultural Futures," CQE Working Papers 3815, Center for Quantitative Economics (CQE), University of Muenster.
    12. Longstaff, Francis & Wang, Ashley, 2002. "Electricity Forward Prices: A High-Frequency Empirical Analysis," University of California at Los Angeles, Anderson Graduate School of Management qt7mh2m2bt, Anderson Graduate School of Management, UCLA.
    13. Konstantinidi, Eirini & Skiadopoulos, George, 2011. "Are VIX futures prices predictable? An empirical investigation," International Journal of Forecasting, Elsevier, vol. 27(2), pages 543-560, April.
    14. Goto, Mika & Karolyi, G. Andrew, 2004. "Understanding Electricity Price Volatility within and across Markets," Working Paper Series 2004-12, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    15. Bohl, Martin T. & Siklos, Pierre L. & Stefan, Martin & Wellenreuther, Claudia, 2020. "Price discovery in agricultural commodity markets: Do speculators contribute?," Journal of Commodity Markets, Elsevier, vol. 18(C).
    16. Mirasgedis, S. & Sarafidis, Y. & Georgopoulou, E. & Lalas, D.P. & Moschovits, M. & Karagiannis, F. & Papakonstantinou, D., 2006. "Models for mid-term electricity demand forecasting incorporating weather influences," Energy, Elsevier, vol. 31(2), pages 208-227.
    17. Richard Tol, 2013. "The economic impact of climate change in the 20th and 21st centuries," Climatic Change, Springer, vol. 117(4), pages 795-808, April.
    18. Baumeister, Christiane & Kilian, Lutz, 2014. "A General Approach to Recovering Market Expectations from Futures Prices With an Application to Crude Oil," CEPR Discussion Papers 10162, C.E.P.R. Discussion Papers.
    19. Bredin, Don & O'Sullivan, Conall & Spencer, Simon, 2021. "Forecasting WTI crude oil futures returns: Does the term structure help?," Energy Economics, Elsevier, vol. 100(C).
    20. Loïc Maréchal, 2021. "Do economic variables forecast commodity futures volatility?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(11), pages 1735-1774, November.

    More about this item

    Keywords

    Electricity Markets; Power Derivatives and Forecasting Electricity Prices;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fem:femwpa:2007.88. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/feemmit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: barbara racah The email address of this maintainer does not seem to be valid anymore. Please ask barbara racah to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/feemmit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.