Please use this identifier to cite or link to this item:
Michalovský, Michal
Paholok, Igor
Year of Publication: 
[Journal:] European Financial and Accounting Journal [ISSN:] 1805-4846 [Volume:] 6 [Year:] 2011 [Issue:] 1 [Pages:] 76-103
In the discussion on the relationship between spot and forward prices in electricity markets, the equilibrium approach has an unambiguous prevalence. It is the relative recency of this market that gives rise to the question of how precisely forward prices converge to the spot prices. We decide to measure this convergence, with its eventual imbalance called risk premium, on several European energy exchanges trading electricity futures. The concept of risk premium, as it is worked out by Bessembinder and Lemon (2002) is reviewed in our essay through the Markowitz portfolio theory. Unlike in the B-L model, where the variance of the spot price has a strictly negative relationship to the risk premium, it is shown that the portfolio theory gives us a different inference that the variance can have both negative and positive impacts according to the strength of supply and demand in the market. This empirically tested and found appropriate. Positive dependence of variance in the electricity markets have been found in Central Europe and Scandinavia, while in Iberian the results are still negative.
Portfolio theory
B-L equilibrium model
Electricity forward markets
Persistent Identifier of the first edition: 
Document Type: 

Files in This Item:

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.