Empirical Research on Price Discovery Efficiency in Electricity Futures Market

Abstract

The electricity futures market is an inevitable product from the development of electricity spot market, it is advantageous to discover the real price of electric power and reduce the risk of electricity market. In this paper, by means of the new models and methods in Econometrics, like the cointegration analysis, the error correction model, the Granger causality test, the impulse response analysis and the variance decomposition, the price discovery in the electricity futures market is empirically studied. With an example of Nordic electricity market, it can be concluded that the futures price and spot price both are a non-stationary time series, but are cointegrated, and the futures price is an unbiassed estimate of spot price, that is, the futures market satisfies the simple efficiency in the Nordic electricity market; there is unidirectional causality from the futures price to the spot price, in the long term the influence of futures price is greater than that of spot price on the market price, and the futures market plays an important role in the price discovery, thus achieving good price discovery in the Nordic electricity futures market. The successful operation pattern of the Nordic electricity futures market provides an important reference for the electricity financial market in other countries.