Price Discovery in European Energy Markets

50 Pages Posted: 24 Jul 2012 Last revised: 6 Sep 2012

See all articles by John Swieringa

John Swieringa

Australian National University (ANU)

Date Written: September 5, 2012

Abstract

We undertake the first examination of price discovery within the European markets for coal, natural gas and crude oil. Short-run return dynamics are analyzed using a regression approach similar to Fleming, Ostdiek and Whaley (1996), while the permanent contribution of securities to long-run price equilibrium is examined by calculating Hasbrouck’s (1995) information shares. Brent crude oil futures display greater price discovery than a proxy for the physical Brent market, while there is evidence that West Texas Intermediate futures still dominate price discovery globally. In natural gas markets, monthly expiry UK natural gas futures display greater price discovery, though weak links to the crude oil market remain. Due to a lack of liquidity and transparency it remains difficult to distinguish between coal securities.

Keywords: price discovery, coal, natural gas, Brent, WTI, information shares

JEL Classification: C32, G13, G14, O13, Q40

Suggested Citation

Swieringa, John, Price Discovery in European Energy Markets (September 5, 2012). Available at SSRN: https://ssrn.com/abstract=2116194 or http://dx.doi.org/10.2139/ssrn.2116194

John Swieringa (Contact Author)

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory
Australia

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