On the Link between Spot and Forward Power Prices: A Comparative Analysis of German and Hungarian Power Market Efficiency
|Autor:||Mgr. Pavel Harnych|
|Rok:||2015 - letní|
|Vedoucí:|| prof. PhDr. Ladislav Krištoufek Ph.D.
|Typ práce:|| Diplomová
Finance, finanční trhy a bankovnictví
|Abstrakt:||This thesis examines the impact of shocks in spot prices on long-term forward contracts in
power markets. A unique comparison of efficiency of German and Hungarian power markets
is provided. The risk premium on week-ahead forward contract is scrutinized by both data
inspection and by unbiased forward rate hypothesis (UFRH) testing. Additionally, the ex-post
market’s prediction error for this product is explained by main drivers of spot electricity price,
which are presented in section devoted to introduction to power markets. Expectedly,
Hungarian forwards with longer time-to-delivery are found to react heavily on spot market
shocks after controlling for changes in short-run marginal costs of conventional power plants.
Such outcome applies both to intra-day and weekly time horizons. However, this evidence
was not found for German market. These results point out to immaturity and the presence of
inefficiencies in Hungarian power market. However, Hungarian risk premia on week-ahead
and day-ahead forward products turn out to be considerably lower than for Germany. This
was confirmed by UFRH tests on week-ahead forward contracts, where a significant risk
premium was found in Germany as opposed to Hungarian risk premium. This finding is
surprising since Hungarian spot prices are more prone to upward spikes. Hence, the risk
premium is supposed to be higher in Hungary to compensate for delivery risk.