A team of CEFGroup researchers have just published an IAEE Working Paper on International Comparison of the Efficiency of Electricity Futures.
The paper will be presented at an IAEE Webinar next Tuesday, 27th October, at 9am NZT.
Abstract:
The paper makes an original contribution to the electricity market literature by using an international sample to explore the efficiency of electricity futures across different markets. We focus on the efficiency of five futures markets (Australia, Germany, New Zealand, Nord Pool and the PJM Interconnection) between 2002 and 2016. Our analysis has three components; first we explore the validity of the unbiasedness hypothesis in this context; second, we test the forecast power of futures prices; and; third we explore market characteristics as determinants of efficiency. Our analysis of the unbiasedness hypothesis finds that the German and New Zealand markets are the only efficient markets for the entire sample, even though they are at the two extremes in terms of liquidity and market maturity. When testing the forecast power, all futures markets outperform naïve forecasts and the predictability seems to be improving as markets mature, except for the U.S. futures which show a decline. The generating mix does not seem to affect forecastability. We find that market efficiency is time varying, mostly improving with market maturity and is related to risk and liquidity factors.
