Francis A. Longstaff is a Certified Public Accountant (CPA) and a Chartered Financial Analyst (CFA). From 1995 to 1998, Professor Longstaff was head of Fixed Income Derivative Research at Salomon Brothers Inc. in New York. Professor Longstaff has also worked in the research department of the Chicago Board of Trade and for Deloitte and Touche as a management consultant.
Published in:
Publication year: 2002
Co-author 1: Ashley Wang
We conduct an empirical analysis of electricity forward prices using a highfrequency data set of hourly spot and day-ahead forward prices. We nd that there are signi cant 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 prices and demand as well as the risk of price spikes. In contrast to the popular post-Enron view that electricity markets are easily manipulated, these results support the hypothesis that electricity forward prices are determined rationally by risk-averse economic agents.
We conduct an empirical analysis of electricity forward prices using a highfrequency data set of hourly spot and day-ahead forward prices. We nd that there are signi cant 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 prices and demand as well as the risk of price spikes. In contrast to the popular post-Enron view that electricity markets are easily manipulated, these results support the hypothesis that electricity forward prices are determined rationally by risk-averse economic agents.