The Forward Premium in Electricity Markets: An Experimental Study

CERGE-EI Working Paper Series No. 656, 2020

36 Pages Posted: 29 Jun 2020

See all articles by Silvester Van Koten

Silvester Van Koten

Jan Evangelista Purkyně University, FSE

Date Written: June 1, 2020

Abstract

An economic laboratory experiment is used to test the validity of Bessembinder and Lemmon's (2002) seminal risk premium theory. The theory predicts that forward premia in electricity markets are determined by the statistical properties of demand. The existing empirical evidence is mixed, possibly as a result of the lack of observability of key variables. Specifically, the experiment tests if an increase in the variance of demand makes the forward premia more negative for specific parameters and implementation details. The experimental results corroborate the theoretical predictions.

Keywords: Forward Premia, Electricity Markets, Economic Experiments

JEL Classification: C92, G13, G40, L94, Q47

Suggested Citation

Van Koten, Silvester, The Forward Premium in Electricity Markets: An Experimental Study (June 1, 2020). CERGE-EI Working Paper Series No. 656, 2020, Available at SSRN: https://ssrn.com/abstract=3619487 or http://dx.doi.org/10.2139/ssrn.3619487

Silvester Van Koten (Contact Author)

Jan Evangelista Purkyně University, FSE ( email )

Pasteurova 1
Ústí nad Labem, 400 96
Czech Republic

HOME PAGE: http://www.ujep.cz

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
12
Abstract Views
169
PlumX Metrics