Risk premium, volatility and trading volume in overnight elec-tricity forward markets
- Autores: Juan Ignacio Peña Sánchez de Rivera, Rosa Rodríguez López
- Localización: Notas técnicas: [continuación de Documentos de Trabajo FUNCAS], ISSN-e 1988-8767, Nº. 799, 2018
- Idioma: inglés
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Resumen
This paper studies the overnight risk premium and volatility of futures electricity contracts traded in the French, German/Austrian, Italian and Spanish electricity markets in 2008- 2017. In the Spanish and Italian markets, the average risk premium is zero. The yearly risk premium ranges from -11% in monthly contracts to -7% in quarterly contracts, in the German/Austrian market, averaging -9%. In the French market, the risk premium in yearly contracts is -5%, but is zero in monthly and quarterly contracts. Negative risk premia suggest that forward-contract sellers are more risk-averse than buyers. Those negative risk premia vanish after 2015, suggesting that markets learn and increase their efficiency. In contrast with Fleten et al. (2015), the risk premium does not change before and after the forward contract becoming the front product. In the four markets, the volatility of the risk premium of monthly contracts increases by 28% on average when the contract becomes the front product. Trading volume explains this increase in volatility in the German/Austrian and Spanish markets, but in the French and Italian markets, trading volume has little explanatory power on the volatility.
