Electricity Forward Prices: A High‐Frequency Empirical Analysis

  • Author(s): Francis A. Longstaff, Ashley W. Wang
  • Published: Nov 27, 2005
  • Pages: 1877-1900
  • DOI: 10.1111/j.1540-6261.2004.00682.x


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.

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