Abstract
This paper presents new and updated evidence on the efficiency of the EPAD contracts in the Nordic financial electricity market, based on a long sample of 14 years, from 2000 to 2013 inclusive. The Electricity Price Area Differentials (EPADs) are used to hedge against price differences between a bidding area and the Nordic system price. The aim of this paper is twofold. First, we estimate the magnitude and significance of ex-post risk premia in EPAD products (season, month, quarter, year) with delivery in 2000-2013. Further, we estimate the relationship between spot and futures prices by vector autoregression (VAR) model. By observing Granger causalities, adjustments to price shocks, and decomposing variance, we aim to shed light on the EPADs’ efficiency. Second, we elaborate on some determinants of risk premia and test the roles of time-to-maturity and open interest on risk premia. We additionally consider, for the Nordic system an essential energy source, the role of water availability in the hydro reservoirs on explaining local area price spreads. We support and reject some of the earlier findings about the limited efficiency of the EPADs and bring new empirical evidence on the drivers behind the regional price dynamics.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
