Journal of Finance Vol. 59 No. 4 2004

Electricity Forward Prices: A High‐Frequency Empirical Analysis

Francis A. Longstaff; Ashley Wang¹

¹ Francis Longstaff is from the Anderson School at UCLA and the NBER. Ashley W. Wang is from the Graduate School of Management, UC Irvine. We are grateful for helpful discussions with Scott Benner, Hank Bessembinder, David Hirshleifer, Jason Hsu, Mitz Igarashi, Michael Lemmon, Max Moroz, Richard Roll,

Abstract

We conduct an empirical analysis of forward prices in the PJM electricity market using a high‐frequency data set of hourly spot and day‐ahead forward prices. We find that there are significant risk premia in electricity forward prices. These premia vary systematically throughout the day and are directly related to economic risk factors, such as the volatility of unexpected changes in demand, spot prices, and total revenues. These results support the hypothesis that electricity forward prices in the Pennsylvania, New Jersey, and Maryland market are determined rationally by risk‐averse economic agents.

DOI

10.1111/j.1540-6261.2004.00682.x

Volume

59

Issue

4

Pages

1877-1900

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓