Efficiency in the Nordic futures power market : an empirical study of the Nordic futures power market
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- Master Thesis 
In this thesis, we investigate if the Nordic futures power market is efficient. To answer this question, we will perform cointegration tests, test the unbiasedness hypothesis and check the causal relationships between the spot price and futures prices with 1- to 6-months to maturity. We use daily observations from the period between 01.10.2015 and 15.09.2020. We have used price data of the spot price from Nord Pool, price data for the futures contracts from Bloomberg and volume data from Nasdaq OMX in our thesis. We use cointegration techniques because the data is non-stationary. Cointegration is tested to see if there is a long-run equilibrium relationship between the spot and the futures prices. Our results suggest that the spot and the futures prices have a cointegration relationship for five out of six contract lengths. To further investigate these relationships, we perform a causality test to see which of the time series leads the other. The futures contracts lead the spot price for most of the contract lengths, which indicates that the futures market is having a price discovery function on the spot price. Having at least one cointegration relationship is a requirement for testing the unbiasedness hypothesis. The unbiasedness hypothesis test if the futures prices are the best predictor of the forthcoming spot price, i.e., if the market is efficient. The hypotheses only hold for the 1-month futures contract length, supporting efficiency. For the longer to maturity futures contracts, the futures market is inefficient, and the potential of observing a risk premium in the market increases. Our findings are consistent with other fundamental research on the electricity futures market. Differences from other studies could be due to a different data set. Our research is done on futures and not DS futures, which may give some different results than previous studies. Nasdaq OMX issued the futures we apply in late 2015, and to our knowledge, there has not been any similar research on these futures contracts before.